Base Shifting with Suitance Example

Base shifting is a technique used in index numbers to compare data from different periods by changing the base period. It involves selecting a new base period and expressing all the other periods relative to this new base. This helps in analyzing the changes over time and understanding the relative movements of different variables.

Example:
Let's consider the following example to understand base shifting:

Suppose we want to analyze the inflation rate in a country over the last five years. The Consumer Price Index (CPI) is used as a measure of inflation. The index for each year is given as follows:

Year | Index
-------------
2016 | 100
2017 | 110
2018 | 120
2019 | 130
2020 | 140

Step 1: Select a new base period
Let's choose the year 2018 as the new base period for comparison.

Step 2: Calculate the base shift factor
The base shift factor is the ratio of the index of the new base period to the index of the original base period. In this case, the base shift factor is 120/100 = 1.2.

Step 3: Apply the base shift factor to the other periods
To express the other periods relative to the new base period, we multiply each index by the base shift factor. The shifted index values are as follows:

Year | Index (Shifted)
-----------------------
2016 | 100 * 1.2 = 120
2017 | 110 * 1.2 = 132
2018 | 120 * 1.2 = 144
2019 | 130 * 1.2 = 156
2020 | 140 * 1.2 = 168

Step 4: Analyze the changes
By shifting the base period, we can now compare the index values of different years relative to the new base. This helps in understanding the changes in the inflation rate over time. For example, we can see that the index increased by 20% from 2016 to 2019 (120 to 156), indicating a rise in inflation.

Conclusion:
Base shifting is a useful technique in index numbers to facilitate comparisons over time. By selecting a new base period and expressing all other periods relative to this base, we can analyze the changes and understand the relative movements of different variables. In the example provided, we shifted the base period to 2018 and calculated the shifted index values for the other years. This allowed us to compare the inflation rate over the five-year period and identify the changes in the index values.