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Base Effects

"Base effects" refers to how economic values from a year ago affect the rate of change in economic data today.

Take inflation, for example. If inflation was high in the same month a year ago, that high value would drop out of the calculation when inflation is recalculated this month.

As a result, high year-ago comparables are favourable, as they make it more likely that inflation will fall when it's reported this month.

Conversely, weak comparables are tougher to beat, as they make it less likely that inflation will fall on a year-over-year basis.

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