The base effect refers to the <mark style="background: #FFF3A3A6;">influence of a previous, usually exceptional, low or high value on the current period's growth rate or other statistical indicators. </mark> -> Covid When analyzing economic data or comparing year-over-year values, the base effect becomes significant. For example, let's consider inflation. If the inflation rate in a particular year is exceptionally low, say 1%, and the following year it increases to 3%, the year-over-year growth rate appears higher due to the low base in the previous year. This is due to the comparison being made against a lower starting point. The base effect can distort the interpretation of data because it obscures the true underlying trend. It is important to be aware of the base effect when interpreting economic data to avoid drawing incorrect conclusions based solely on the year-over-year changes. It is particularly relevant when analyzing economic indicators that can be affected by seasonal patterns, such as retail sales, employment figures, or GDP growth rates. By understanding the base effect, economists and analysts can make more informed assessments of economic performance and make adjustments for accurate comparisons.