What is Wholesale Price Index (WPI)?

About Wholesale Price Index (WPI):

• WPI measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
• It is calculated and published by the Office of Economic Advisor, Department of Industrial Policy and Promotion in the Ministry of Commerce and Industry.
  • WPI data is published monthly, with the index value representing an estimate of the price level for the month as a whole, rather than a specific date.
• Analystsuse the numbers to track the supply and demand dynamics in industry,manufacturing, and construction.
• An upward surge in the WPI indicates inflationary pressure in the economy, and vice versa.
• The quantum of rise in the WPI month-after-month is used to measure the level of wholesale inflation in the economy.
• Difference between WPI and Consumer Price Inflation (CPI) inflation:
  • While the WPI keeps track of the wholesale price of goods, the CPI measures the average price that households pay for a basket of different goods and services.
  • WPI is restricted to only goods, while CPI is for both goods and services. 
  • Even as the WPI is used as a key measure of inflation in some economies, the Reserve Bank of India (RBI) no longer uses it for policy purposes, including setting repo rates. The RBI currently uses CPI, or retail inflation, as a key measure of inflation to set monetary and credit policy.
• New series of WPI: With an aim to align the index with the base year of other important economic indicators such as GDP and IIP, the base year was updated to 2011-12 from 2004-05 for the new series of WPI, effective from April 2017.
• How do you calculate WPI?
  • It is calculated by taking a weighted average of the prices of a basket of goods, with each item’s weight determined by its share of total wholesale sales.
  • The basket of goods comprises three major groups:
  • Primary Articles (Weight 22.62%)
  • Fuel and Power (Weight 13.15%)
  • Manufactured Products (Weight 64.23%)
  • The prices of a total of 697 items are tracked under the 2011-12 series of the WPI, which includes 117 primary items, 16 items of fuel and power, and 564 manufactured products.

Q1: What is deflation?

Deflation is when prices decrease over time. It stands in contrast from inflation, which refers to when prices rise. It can be driven by many different factors, including an increase in productivity and the abundance of goods and services; a decrease in total or aggregate demand; or a decrease in the supply of money and credit.

Source: Wholesale inflation hit a 13-month high in April

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