A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?
Answer & explanation
Answer: (c) It is the impact of the price levels of previous year on the calculation of inflation rate
Inflation is measured by comparing today's price index with the index a year earlier, so the earlier year is the 'base'. If prices that year were unusually low or high, the current inflation rate looks artificially high or low. That statistical effect of last year's price level is the base effect.
- ✓ (c) The base effect is the influence of the previous year's price level on the calculated inflation rate. A low base makes even a small price rise show up as high inflation. A high base does the opposite.
- ✗ (a) A supply shortage caused by crop failure is a real, current supply-side cause of rising prices. It is not a base effect, which is only an arithmetic feature of the comparison.
- ✗ (b) A surge in demand from rapid growth is a demand-pull cause of inflation. The base effect arises from the reference period used for the comparison, not from demand.
- ✗ (d) Option (c) is correct, so 'none of the above' cannot be right.
Remember · Base effect is a statistical effect: unusually low prices a year ago (low base) push the current inflation rate up, and a high base pulls it down.
Sources
- Base Effect – Arthapedia, Indian Economic Service (ies.gov.in) ↗ “if the inflation rate was too low in the corresponding period of the previous year, even a relatively smaller rise in the Price Index will arithmetically give a high rate of current inflation.”
- RBI Bulletin – State of the Economy (rbi.org.in) ↗ “if inflation is driven up by base effects (m-o-m changes in prices a year ago), the role of inflation’s history comes into play”
Question: UPSC Civil Services (Preliminary) 2011, General Studies Paper I. Explanation: Minimalist IAS, checked 25 Oct 2026 (how we verify). ·
