What is defined as the Base Year in an indexing system?

The Base Year in an indexing system refers to the starting point for the index, typically set to a value of 100. This is the reference point against which all other values are compared. By establishing a Base Year, analysts can assess how performance, prices, or other metrics change over time relative to this pivotal moment.

Setting the Base Year at 100 simplifies the calculation of percentage changes, making it easier to interpret trends and comparisons. For instance, if a subsequent year has an index value of 120, it indicates a 20% increase relative to the Base Year. Thus, the Base Year serves as a crucial benchmark in various fields such as economics, finance, and commercial contracting.