Base effect

The base effect is the distortion in a percentage change caused by an unusually high or low comparison value in the base period, which can make a growth or inflation figure look misleadingly large or small.

What it is

See it move

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Oil collapses to an abnormally low €50 a barrel, then recovers to €75 a year later: (75 − 50) ÷ 50 × 100 = 50%. Had the price instead sat at a normal €60 that year, the same €75 current price would show (75 − 60) ÷ 60 × 100 = 25%, less than half the headline figure, purely from the base used.

The formula

LaTeX

\%\Delta = \frac{V_1 - V_0}{V_0} \times 100

Variables

$V_{1}$: Current-period value
$V_{0}$: Base-period value

Computes the percentage change between two periods; a base effect arises when the base value V0 is itself abnormally high or low.