A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”

A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?

(a)

It is the impact of drastic deficiency in supply due to failure of crops.

(b)

It is the impact of the surge in demand due to rapid economic growth.

(c)

It is the impact of the price levels of previous year on the calculation of inflation rate.

(d)

None of the statements (a), (b) and (c) given above is correct in this context.

The base effect refers to how previous price levels affect current inflation calculations, making high or low inflation rates more pronounced.