A Base Year is the first of a series of years in an economic or financial index. It is typically set to an arbitrary level of 100. New, up-to-date base years are periodically introduced to keep data current in a particular index. Any year can serve as a base year, but analysts typically choose recent years.The choice of a base year is important for two reasons: it establishes the starting point for comparisons and it affects calculations of percentage changes. The use of different base years can distort comparisons between time periods if not done correctly. For example, if inflation rates are calculated from two different indexes that have different base years, they will not be comparable even if they both purport to measure inflation rates over the same period! To avoid this problem, economists often standardize all measures against a common reference point, usually using either the current or past year as the baseline (base)year.Choosing which year should become the new reference point (or "base") presents its own set of challenges because no single year can capture all aspects and changes in an economy or market at any given time point; moreover some economic indicators may move more slowly than others.
