With the 16-year-old still trying to share whatever summer or early spring junk he has with me and trying to fight it off. I will keep this short, but wanted to touch on it. It fits well in our Advanced Analysis series and is very pertinent to some of our Interest Rate talk… Recall CPI is Consumer Price Index – one of the bluntest measurements of Inflation!
Base Effects- The year ago (or other time measure) look back comparable… to expect future headwinds or easier comparisons as the pertinent time frame lapses the measurement, dropping it from the measured time frame!
Base Effects and their importance
Base effects are essentially the lapping of prior data, most commonly a year ago data, but can also be a month or quarter, and that prior data’s importance on the upcoming replacement new report/data print.
From Investopedia: The base effect is the effect that choosing a different reference point for a comparison between two data points can have on the result of the comparison. This often involves the use of some kind of ratio or index value between two points in a time-series data set, but can also apply to cross-sectional or other types of data.
As an example and using the most common year ago base effects for CPI (Consumer Price Index- Blunt Inflation Measure) – when you look ahead to weakening year ago base effect, this could put upward pressure on the next reports…. Easy as that!
Doubtful this CPI base effect is as clear as Mr. Clark makes in this tweet…but they certainly do count and it is rather easy to review!
What he is saying is because the year ago base effects are getting easier, if CPI does not go down as the base effect comps, CPI will hold steady or even go up! Much of this is due to the fact CPI raced up higher, and then dropped off – still lingering effects today from the Covid stimulus!
Have a Great “Base Effect Advanced Analysis” Day!
John A. Kvale CFA, CFP
AI Content Authenticity: All of the following text content has been completed by myself and has not been edited or created by AI. Occasionally we do use AI for images and will note below the image when appropriate.
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
