What defines the inflation rate?

The inflation rate is defined as the percentage increase in general price levels within an economy over a specified period, usually measured on an annual basis. This metric represents how much the prices of a basket of goods and services increase on average, reflecting the purchasing power of money. When the inflation rate rises, it indicates that consumers need more money to purchase the same quantity of goods and services, effectively eroding the value of currency.

The correct option captures the essence of inflation by focusing on the percentage change, which is crucial for understanding economic conditions. It allows economists and policymakers to assess the health of an economy, make decisions regarding interest rates, and evaluate the impact on consumers and businesses. Other options such as the increase in consumer goods prices or wages, while related to inflation, do not specifically define it as comprehensively as the correct choice does, as they do not cover the holistic view of price levels across the economy. Similarly, changes in production costs are relevant to discussions about inflation but do not directly define the inflation rate itself.