Definition of base year: the starting point for the construction of an index number series.
The base period or base year refers to the year in which an index number series begins to be calculated. This will invariably have a starting value of 100.
For example, in constructing the Consumer price index, the government may use a base year of 2000. Therefore a CPI index may look like this
2000 = (100)
2001 = (103.5)
2002 = (109)
This simple index series shows an inflation rate of 3.5% in the first year. In 2002, we can see prices have risen 9.0% since 2000.
Sterling Exchange Rate Index
With base year of 2007 = 100
Examples of index numbers
Index of renting
In this case, all renting index start off with a base year in Jan 2011. This enables us to make comparisons from this point.