Inflation base effects: a lower rate can coexist with rising prices
A positive inflation rate means the selected price index rose over the comparison period.
Separate a price level from its growth rate
A positive inflation rate means the selected price index rose over the comparison period. A smaller positive rate means it rose more slowly, not that its level fell. A twelve-month calculation also depends on the earlier base, so a large move dropping out of that window can change the reported rate.
The invented price index rises from 100 to 110 to 115.5, while annual inflation slows from 10% to 5%. The left panel shows levels; the right shows their percentage changes.
Open full-size diagram ↗Calculate a three-year illustration
Take invented index levels of 100, 110 and 115.5 at the same month in three successive years. The first yearly increase is 10%. The second is 5%, because 115.5 ÷ 110 − 1 = 0.05. Prices in the example still rise by 5.5 index points in the second interval. Relative to the first year, the total increase is 15.5%, not the sum of two percentages interpreted as unchanged-price levels.
Worked example: First annual change %: 10; Second annual change %: 5; Two-year cumulative %: 15.5. Invented values; units follow the row labels and article.
Open full-size diagram ↗Check the denominator before explaining a headline
Write both endpoints next to each reported percentage. If the latest index is unchanged but the comparison base differs, the resulting growth calculation changes. That observation alone does not establish why prices moved or what will happen next. Separate the arithmetic contribution of the base from a causal economic story.
Calculation checklist: Second-year index change: +5.5 points; Second-year inflation: +5%; Prices fell?: No, in this illustration. Preserve these definitions when reproducing the example.
Open full-size diagram ↗Use careful language
Describe the example as inflation slowing from 10% to 5%, not prices falling by 5%. A declining index would be a different scenario. This guide is original percentage arithmetic, with no claim about current CPI data. For an actual release, preserve its series, dates and revision status and consult the issuing agency’s documentation.
Sources and conventions
Examples are hypothetical. Worked examples state their formulas and assumptions in the article; our methodology explains the related calculators. Broker contract specifications determine actual lot, margin and execution conditions. These sources document definitions and data; a source link does not imply endorsement of SanForex or a trading service.
These materials are prepared with AI assistance and checked against worked examples and deterministic calculation tests where applicable. They are not an expert suitability assessment or investment advice.
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