How is inflation defined?

Inflation is defined as the rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power. This means that as inflation increases, each unit of currency buys fewer goods and services, effectively reducing the value of money. Understanding inflation is crucial for analyzing economic conditions, as it affects consumers' spending habits and influences monetary policy decisions made by governments and central banks.

The other choices provided do not accurately capture the essence of inflation. While increased consumer demand can contribute to inflation, it is not a definition but rather a potential cause. The decrease in employment rates relates more to economic downturns than to the concept of inflation itself. Lastly, the growth of stock market values is an indicator of investment performance and does not inherently relate to general price changes in the economy. Thus, the correct answer succinctly encapsulates the fundamental nature of inflation and its impact on purchasing power.