A rapid increase in the rate of inflation is sometimes attributed to the "base effect". What is "base effect"?

1. The rate of inflation is typically calculated as the percentage change in a price index compared to the corresponding period in the previous year. 2. The price level of the previous year serves as the 'base' for this calculation. 3. The 'base effect' refers to the impact that this base price level has on the current inflation rate. 4. If the price level in the previous year was unusually low, even a small absolute increase in prices in the current year can lead to a high percentage inflation rate. Conversely, if the previous year's price level was unusually high, a significant absolute price increase might result in a relatively low percentage inflation rate. 5. Therefore, the base effect is the impact of the price levels of the previous year on the calculation of the inflation rate.