DEFINITION of Base Period
A base period is a point in time for which data is gathered and used as a benchmark against which economic data from other periods. Base periods are often used in finance and economics applications, such as measuring inflation or other variables subject to change based on the passage of time.
Also referred to as "reference period."
BREAKING DOWN Base Period
The base period can be thought of as a yardstick for economic data. For example, if a price index has a base year of 1990, current prices are being compared to prices in that time period. When used like this, the base period offers a method to measure changes in price by controlling for the inflation variable. Practitioners can then spot changes in price levels which are not driven by fluctuations in inflation.
As more financial methods use big data and data science applications, base periods for time series analysis grows as an ever more prominent feature of research methodologies.
The use of a base period is not constrained to financial applications. Many natural sciences also regularly use a base period as part of their analytical processes. For instance, to measure changes in global climate patterns, base years must be established.