Wholesale inflation at 7-mth high on soaring food prices

Wholesale Price Index

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Wholesale Price Index
Wholesale Price Index

In News:

  • Inflation based on the wholesale price index (WPI) accelerated to a seven month high of 1.3% in September.

News Summary:

  • 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.

About: Inflation

  • 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.
    1. 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. 
    2. 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.
Wholesale Price Index
Wholesale Price Index
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.

Also Read: 24 states, UTs join scheme on affordable rental housing

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