Base effect

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Time period Index value Abs. Increase Rel. Growth
0 1 - -
1 2 1 100%
2 3 1 50%
3 4th 1 33%
100 101 1 1 %

As a base effect in the economy and is official statistics , the effect referred to, when more and more difficult with increasing absolute size high percentage increases. Sometimes the impression of a high increase, which is only due to a small base value, is referred to as the base effect. The base effect plays a role in particular when interpreting rates of change over the previous period. The level of inflation in a given year depends not only on current price developments , but also on the previous year's price level .

For example, an increase from 100 percent , starting from the value 1, to the new value 2 appears quite impressive. It is a doubling. The base effect is noticeable here, since the absolute increase is only 1. Starting from the value 2, an increase of the same absolute amount, i.e. plus 1 to 3, would only mean an increase of 50 percent. An increase from 3 to 4 corresponds to only 33 percent. An increase of 1 from 100 to 101 then corresponds to only one percent. So you can see that the percentage increase with the same absolute steps decreases with increasing base value (hence the name base effect).

In economics , the base effect plays a role after a crisis, for example in an economy or a company. If, for example, the economic output of an economy is on the ground, small absolute increases are sufficient for a high increase in percent in the first periods of a new upswing.

In the statistics, a basic effect has a dampening effect on the rate of inflation : If comparatively high prices are observed after strong price increases, for example for energy and food , these are included as new comparative values ​​in the calculation of the current annual inflation rate . This annual inflation rate will then be lower than in the previous period due to the base effect.

During periods of economic downturn, a low rate of inflation is often noted by leading economic research institutes. This shouldn't be a cause for concern as the effects can be quite positive. Often the price increase is due to the oil price. Here again, the base effect must be taken into account: The current oil price increase is compared with the price change in the same period of the previous year. If the oil price fell sharply in the past year, it may happen that the current price increase is particularly strong year-on-year. (1)

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