Baseyear

A base year is a reference year used in index numbers to measure relative changes over time. In economic statistics, a base year is typically assigned an index value of 100 and serves as a benchmark for comparing prices, quantities, or other measures across different years.

In price indices such as the consumer price index or producer price index, the index for year t is calculated as (value in year t) divided by (value in the base year) times 100. This yields a relative measure of how prices or quantities have changed since the base year.

Choice of base year matters. A base year should be representative of typical prices and the basket of goods or services covered by the index. Some indices use a fixed base year, while chain-weighted indices update weights year by year by linking successive base years to reduce distortions that occur when relative prices shift.

Rebasing is common when the current base year becomes unrepresentative, or when new goods and services become important. Rebasing changes the numerical level of the index and can affect the rate of change displayed, though it preserves long-run growth trends when done properly.

Base year concepts also appear in real GDP, cost-of-living measures, and other economic aggregates, where the base year normalizes different time periods to a common reference point. The base year itself has no intrinsic meaning beyond its role as a reference point for comparison.