What does inflation refer to?

Inflation refers specifically to a general rise in the average level of all prices over time. This phenomenon indicates that, on average, consumers need to spend more money to purchase the same basket of goods and services than they did in the past. When inflation occurs, the purchasing power of money decreases, meaning that each dollar buys fewer goods and services than before. This can impact economic decision-making for consumers, businesses, and policymakers alike, as it affects everything from savings and investments to wage negotiations.

The other choices refer to different economic concepts that do not align with the definition of inflation. For example, a decrease in the overall price level describes deflation, which is the opposite of inflation. A fixed price level would imply price stability, which contradicts the essence of inflation. Lastly, a short-term fluctuation in prices does not capture the sustained and widespread nature of inflation, as it refers to temporary changes rather than a persistent rise in price levels.