Base Effect

Dictionary Says

Definition of 'Base Effect'


The consequence of abnormally high or low levels of inflation in a previous month distorting headline inflation numbers for the most recent month. A base effect can make it difficult to accurately assess inflation levels over time. It wears off over time if inflation levels are relatively constant.
Investopedia Says

Investopedia explains 'Base Effect'


Inflation is calculated from a base year in which a price index is assigned the number 100. For example, if the price index in 2010 was 100 and the price index in 2011 rose to 110, the inflation rate would be 10%. If the price index rose to 115 in 2012, what would be the best way to assess inflation? On the one hand, prices have only risen 5% over the previous year, but they've risen 15% since 2010. The high inflation rate in 2011 makes the inflation rate in 2012 look relatively small and doesn't really provide an accurate picture of the level of price increases consumers are experiencing. This distortion is the base effect.
comments powered by Disqus
Hot Definitions
  1. Valuation

    The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
  2. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  3. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  4. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
  5. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
  6. IPO ETF

    An exchange-traded fund that focuses on stocks that have recently held an initial public offering (IPO). The underlying indexes tracked by IPO ETFs vary from one fund manager to another, but index IPO ETFs are usually passively managed and contain equities that have recently been offered to the public.
Trading Center