Have read some examples on the net but it’s getting confusing. Hardest part is the base year.
Additional is nominal.
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ok, so the value of money has been changing since forever, yes? so, when we talk about how the value of money has inflated, we need to define a start point for our comparison. thats the base year.
In some calculations, they use a specific, static base year as the start point, but in others, they use a floating one that is fixed relative to the present (ie “20 years ago”, as opposed “2003”), because that gives a more useful number for whatever the calculation is trying to work out.
Now, one side effect of this is that the conditions of the base year can affect how the sums work out, and specifically, if the base year changes, it can change the outcome of the sum without the rest of the data really changing.
For example, we start with a base value of 100. at the end of year one, we are at 150, so we can say we have a 50% annual inflation rate. At the end of year two, the value is 200, so the yearly inflation rate is only 33%, *even though everything went up by as much as it did last year*. the bi-annual rate would show 100% inflation, which is why you can sometimes get different answers of what the inflation rate is, depending on which maths you do..
in the context of the current issues with inflation, we are facing a situation where something like this is basically going to make the headline inflation rate go up, not because of a change in the actual speed of prices going up, but a change in the basis of the comparison that makes it look that way.
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