Wholesale Price IndexApprox Read Time: 3 min
- Inflation based on the wholesale price index (WPI) accelerated to a seven month high of 1.3% in September.
- Wholesale inflation, as measured by the wholesale price index (WPI), accelerated to a seven month high of 1.3% in September.
- In comparison, wholesale inflation was 0.3% in September 2019 and 0.2% in August 2020.
- Inflation in the manufactured products category rose to a seven-month high, which highlighted the rising pricing power and return of demand in the economy. It is being seen as good for industry.
Higher food inflation:
- Food inflation shot up to an eight-month high of 8.2% in September.
- The sharp increase was attributed to crop loss, owing to heavy rains in parts of the country, reduced sowing area, supply of inferior quality seeds and inadequate stocks.
- The rise in potato prices was the highest since the 2011-12 series.
- Tomato prices shot up due to rain-induced crop damages in some parts of the country and high transport costs.
- However, onion prices contracted an annual 31.6% in September.
- Inflation is defined as a sustained increase in the general level of prices for goods and services in a county, and is measured as an annual percentage change. Under conditions of inflation, the prices of things rise over time.
- The value of a rupees is expressed in terms of its purchasing power, which is the amount of real, tangible goods or actual services that money can buy at a moment in time.
- When inflation goes up, there is a decline in the purchasing power of money.
Measurement of Inflation:
- In case of India, the two indices i.e. the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) measure inflationary trends (the movement of price signals) within the broader economy.
- Wholesale inflation, measured by WPI, tracks year-on-year inflation at the level of either the wholesaler or the producer and does not take into account retail margins.
- Consumer inflation, measured by CPI, captures changes in prices levels at the shop end, and is, thereby, reflective of the inflation experienced at the level of consumers.
About: Wholesale Price Index (WPI)
- Wholesale Price Index, or WPI, measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
- WPI tracks prices at the factory gate level. It thus represents the production side and not the consumption side.
- Analysts use the numbers to track the supply and demand dynamics in industry, manufacturing and construction.
- The numbers are released by the Economic Advisor in the Ministry of Commerce and Industry.
- While WPI is used as a key measure of inflation in some economies, the RBI no longer uses it for policy purposes, including setting repo rates.
- The central bank currently uses CPI or retail inflation as a key measure of inflation to set the monetary and credit policy.
Calculation of Wholesale Price Index:
- The monthly WPI number shows the average price changes of goods usually expressed in ratios or percentages.
- The index is based on the wholesale prices of a few relevant commodities available.
- The commodities are chosen based on their significance in the region. These represent different strata of the economy and are expected to provide a comprehensive WPI value.
- The advanced base year 2011-12 adopted recently uses 697 items.
Components of WPI:
- Primary articles is a one of the component of WPI, further subdivided into Food Articles and Non-Food Articles.
- Food Articles include items such as Cereals, Paddy, Wheat, Pulses, Vegetables, Fruits, Milk, Eggs, Meat & Fish, etc.
- Non-Food Articles include Oil Seeds, Minerals and Crude Petroleum.
- Another important component in WPI is Fuel & Power, which tracks price movements in Petrol, Diesel and LPG.
- The biggest basket is Manufactured Goods. It spans across a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, and more.
- Manufactured Goods basket also includes manufactured food products such as Sugar, Tobacco Products, Vegetable and Animal Oils, and Fats.
WPI Food Index:
- WPI has a sub-index called WPI Food Index, which is a combination of the Food Articles from the Primary Articles basket, and the food products from the Manufactured Products basket.