Base Effect

A base effect is the influence of the comparison period, rather than the current one, on a year-on-year rate. Because the rate divides today's level by the level twelve months ago, an unusually high or low reading back then mechanically pushes the current rate down or up, whatever has happened since. The effect is most visible in inflation and output series after a disrupted year: a rate can fall for a quarter simply because the elevated months of the previous year are dropping out of the comparison window. Statistical agencies and central banks usually flag known base effects in advance, and the standard cross-check is to look at the level of the index alongside the shorter-horizon change, which is unaffected by what happened a year ago.