Surely, on many occasions, you have heard the term "comparison base". In the analysis of macroeconomic figures, this phrase is widely used when referring to variations (monthly and yearly) of variables such as GDP, Imacec, CPI, etc. But what exactly does this mean?

To understand the above, it is necessary to know that, as the name says, macroeconomic series are just that, series, which have a level. This level can be an index (for example, the CPI or the Imacec) or a value (for example, the GDP). Thus, and to have the same comparable period, in December 2020, the CPI level was 106.74 and the Imacec 122.86. On the other hand, the GDP for Q4 2020 (there is no "monthly" GDP) reached MM$55,963 at current prices. Therefore, the February CPI (latest available data) was not 0.2%, it was 107.69. The 0.2% was the monthly variation of the CPI and, as any variation, it depends on the current value (of the series), but also on the value with which we want to compare it, in this case, January.

I make this brief explanation, because it has first order implications with something that should happen this year with two of the most popular variables from the macro point of view: growth and inflation. My choice of examples was not accidental, since the best proxy for monthly growth is the Imacec, while for inflation it is the CPI. 

For the former, you are probably aware that 2020 was not a particularly good year. The pandemic hit activity hard, resulting in a 5.8% drop, as indicated on Thursday by the Central Bank. The first figures for 2021 have followed the same trend, with Imacec experiencing a 2.8% drop compared to the same month of the previous year. With a high probability, February will again show a year-on-year drop, but from March onwards... Don't be surprised if we see increases of 6%, 10% or even 20%! Tremendous increases, which should mean that the country would have left behind the negative impacts of covid 19, or not?

Unfortunately, not necessarily. These large variations would occur because the comparison base is very low. Let's not forget that in March 2020 activity contracted 3.5% vs. the previous year, while in April 2020 that was -13.8%. In the series, this meant that while in March 2019 the Imacec level was 117.59, in March 2020 it dropped to 113.43. According to our projections, in 2021, the Imacec level would reach 120.14, which, although it would represent an increase of 5.8% compared to the previous year, would only be 2.2% compared to the same period of 2019. In the following months, the same thing will happen, but with even more strength, which could give a false sense of the magnitude of the recovery of local activity (note, I meant magnitude, not that we do not believe that there will indeed be a recovery). 

For the CPI, it will be similar. By mid-year we do not rule out seeing a year-on-year inflation of around 4.0%, which may worry some. None of that, again it will be a comparison base effect, since, once the economy is "normalized", without much effort the year-on-year CPI variation would return to the usual 3.0%. I hope this not-so-short explanation has helped you understand a little more of the convoluted language we economists use (although not as much as lawyers!).