Wholesale price index

Wholesale price index
See also
GDP deflator National income measures Net domestic product Constant price GDP Imported inflation Inflation accounting Effective exchange rate Real income Value of money over time

The Wholesale Price Index (WPI) is an important macroeconomic indicator used to measure the level of inflation in India. It is a weighted average of the price of goods in the wholesale market. It is compiled by the Office of the Economic Adviser (OEA), Ministry of Commerce and Industry, on a monthly basis. It reflects the changes in the price of goods traded in the wholesale market and is used to measure the rate of inflation in the economy as a whole. The WPI also serves as an important tool for the government to formulate its economic policies.

The WPI is composed of three components:

• The Base Weighted Index (BWI) is based on the prices of a fixed basket of goods and services that were collected in the base period. This component measures the inflation in the prices of commodities in the wholesale market.
• The Fuel, Power, Light and Lubricant (FPLL) component measures the inflation in the prices of fuel, power, light and lubricants.
• The Manufactured Products component measures the inflation in the prices of manufactured goods.

The WPI is an important indicator of inflation in the Indian economy, and is used by the government and central bank to formulate economic policies. It is also used by businesses to track changes in the cost of goods in the wholesale market, and to make decisions regarding pricing and production.

Example of Wholesale price index

The WPI for April 2021 was 167.8, a 4.2% increase from April 2020. This was due to increases in the prices of fuel, power, light and lubricants and manufactured goods. This increase in the WPI is indicative of the rising cost of goods in the wholesale market, and is a sign of increasing inflation in the Indian economy.

Formula of Wholesale price index

The WPI is calculated using the following formula:

$WPI={\frac {\sum _{i=1}^{n}(P_{i}Q_{i})}{\sum _{i=1}^{n}(P_{0i}Q_{i})}}\times 100$

Where P_i and P_0i represent the price of a commodity in the current and base period respectively and Q_i represents the quantity of that commodity in the current period.

The Wholesale Price Index (WPI) is an important macroeconomic indicator used to measure the level of inflation in India. It is composed of three components: the Base Weighted Index (BWI), the Fuel, Power, Light and Lubricant (FPLL) component and the Manufactured Products component. The WPI is calculated using the formula above, which takes into account the prices of a fixed basket of goods and services in the base period and the prices of fuel, power, light and lubricants, as well as manufactured goods in the current period. The WPI is an important tool used by the government and central bank to formulate economic policies, and by businesses to track changes in the cost of goods in the wholesale market.

When to use Wholesale price index

The Wholesale Price Index (WPI) should be used when one is looking to measure the level of inflation in the economy or changes in the cost of goods in the wholesale market. It is also used to track changes in the prices of fuel, power, light and lubricants, as well as manufactured products. The WPI can also be used to make decisions regarding pricing and production.

Types of Wholesale price index

There are two types of Wholesale Price Index (WPI) in India:

• The All-India WPI is based on the prices of a fixed basket of commodities in the wholesale markets of all the states in India.
• The Primary Article WPI is based on the prices of a fixed basket of primary articles such as foodgrains, minerals, crude oil, etc.

The WPI is used to measure inflation in the Indian economy as a whole, and as such it is used to formulate economic policies. It is also used by businesses to track changes in the cost of goods in the wholesale market, and to make decisions regarding pricing and production.

Steps of Wholesale price index

The calculation of the WPI involves four steps:

• Data Collection: The OEA collects data on the prices of the goods and services that make up the fixed basket of goods for the current period.
• Base Weighting: The prices of the goods in the base period are weighted by the quantities of the goods in the current period.
• Aggregation: The weighted prices of goods in the current period are aggregated to arrive at the BWI.
• Collection and Aggregation of Fuel, Power, Light and Lubricant Component: The prices of fuel, power, light and lubricants in the current period are collected and aggregated to arrive at the FPLL component.
• Manufactured Products Component: The prices of manufactured goods in the current period are collected and aggregated to arrive at the Manufactured Products component.

Advantages of Wholesale price index

The WPI has several advantages over other indices such as the Consumer Price Index (CPI) and Producer Price Index (PPI):

• The WPI is more comprehensive than the CPI and PPI, as it covers a wider range of goods and services.
• The WPI is more accurate in measuring changes in the cost of goods, since it takes into account changes in the quality of goods as well as changes in the price.
• The WPI is more timely than the CPI and PPI, as it is released on a monthly basis.

Limitations of Wholesale price index

Despite its usefulness, the WPI is subject to certain limitations. These include:

• The fixed basket of goods and services used to calculate the WPI does not always reflect current market conditions.
• The index does not take into account changes in the quality of goods and services.
• The WPI does not reflect the true inflation in the economy as it only measures the inflation in the wholesale market.

Other approaches related to Wholesale price index

Apart from the WPI, there are other approaches used to measure inflation in India, such as the Consumer Price Index (CPI) and the Producer Price Index (PPI).

• The Consumer Price Index (CPI) measures the rate of inflation in the prices of goods and services consumed by households. It is based on the prices of a fixed basket of goods and services that are collected from households in urban and rural areas.
• The Producer Price Index (PPI) measures the rate of inflation in the prices of goods and services produced by businesses. It is based on the prices of a fixed basket of goods and services that are collected from businesses in different sectors of the economy.

These approaches are complementary to the WPI and provide a comprehensive measure of inflation in the Indian economy. They are used by the government and central bank to formulate economic policies, as well as by businesses to make decisions regarding pricing and production.

In summary, the Wholesale Price Index (WPI) is an important macroeconomic indicator used to measure the level of inflation in India. It is composed of three components, the Base Weighted Index, the Fuel, Power, Light and Lubricant component, and the Manufactured Products component. It is calculated using a formula that takes into account the prices of a fixed basket of goods and services in the current and base period, and the quantities of those commodities in the current period. There are also other approaches used to measure inflation in India, such as the Consumer Price Index (CPI) and the Producer Price Index (PPI). All these approaches are used by the government and central bank to formulate economic policies, as well as by businesses to make decisions regarding pricing and production.

Suggested literature

• Ruggles, R. (1977). The Wholesale Price Index: Review and Evaluation.
• Shahbaz, M., Wahid, A. N., & Haider, A. (2010). Empirical psychology between wholesale price and consumer price indices: the case of Pakistan. The Singapore Economic Review, 55(03), 537-551.
• Catão, L. A. (1992). A new wholesale price index for Brazil during the period 1870-1913. Revista Brasileira de Economia, 46(4), 519-534.