The Wholesale Price Index (WPI) is a crucial economic indicator that provides estimates of inflation at the wholesale transactions level in the economy. It serves several purposes and is a valuable tool for various stakeholders:
- Timely Intervention and Inflation Check:
- WPI facilitates timely intervention by the government to control inflation, particularly in essential commodities. It allows authorities to address price increases at the wholesale level before they impact retail prices.
- GDP Estimation:
- WPI is used as a deflator for many sectors of the economy when estimating Gross Domestic Product (GDP) by the Central Statistics Office (CSO). It helps in adjusting nominal values for inflation.
- Industrial Production Index:
- WPI is employed to deflate nominal values of production in the Index of Industrial Production (IIP). This is crucial for understanding the real growth in industrial output.
- Investment Decision Tool:
- Global and domestic investors track WPI for making informed investment decisions. It provides insights into inflation trends that can impact various sectors.
- Publication and Components:
- The WPI is published by the Economic Advisor in the Ministry of Commerce and Industry, typically with a one-month lag.
- Commodities considered for WPI calculation are categorized into primary articles, fuel and power, and manufactured goods. Primary articles include food and non-food articles, while manufactured goods cover various industries.
- All-India Character and Calculation:
- WPI has an all-India character and calculates the inflation rate on a point-to-point basis. This involves comparing the price of a good at a specific point in one year with the price at the same point in the previous year, respecting seasonality factors.
- Handling Seasonal Items:
- Seasonal agricultural commodities are handled in a special manner. When a seasonal item is not available, its weight is distributed over remaining items and new seasonal items in the concerned sub-group.
- Limitations and Accuracy Concerns:
- The accuracy of WPI is deemed unsatisfactory even after the introduction of the revised series in 2017.
- Certain services and products, such as education, telecom, healthcare, and those from the unorganized sector, are not part of the WPI basket, limiting its representation of the overall price level.
In summary, while the WPI is a valuable tool for tracking inflation at the wholesale level and influencing economic decisions, it has certain limitations that affect its comprehensiveness and accuracy.
New Wholesale Price Index (WPI):
The Wholesale Price Index (WPI) is a key economic indicator that reflects inflation at the wholesale level. Governments periodically revise the base year of macroeconomic indicators to adapt to structural changes in the economy and improve the quality, coverage, and representativeness of the indices. Here are the key details about the new WPI series with the base year 2011-12 = 100:
- Revision Rationale:
- The base year of the All-India WPI was revised from 2004-05 to 2011-12 to align it with the base year of the Central Statistics Office (CSO) for Gross Domestic Product (GDP) and Index of Industrial Production (IIP).
- Working Group and Leadership:
- The working group responsible for the revision was chaired by Late Dr. Saumitra Chaudhuri. The revision involved changes in the commodities in the basket and the assignment of new weights.
- Basket Changes:
- The new WPI basket increased the number of items from 676 to 697. This expansion aimed to enhance the representation of various goods and services in the index.
- Quotations and Coverage:
- The number of quotations, representing price information collected from various shops, increased from 5482 to 8331.
- Exclusion of Indirect Taxes:
- The new definition of WPI excludes indirect taxes to better capture productivity and scale. This adjustment aligns the new series more closely with the concept of the Producer Price Index and global practices.
- Technical Review Committee:
- For the first time, a Technical Review Committee was established to recommend methodological interventions aimed at continuously improving coverage, quality, and timeliness of the WPI.
- Separate Food Index:
- The new series introduces a separate ‘WPI Food Index,’ providing a more focused measure of food inflation. This, along with the Consumer Price Index (CPI) Food Price Index published by the CSO, enhances monitoring of food inflation.
- Seasonality and Specifics:
- The new series addresses seasonality concerns, such as changes in the availability of fruits and vegetables throughout the year.
- Specific examples include an extension of the availability of cauliflower from six to eight months.
The revision and enhancements in the new WPI series aim to provide a more accurate and comprehensive reflection of inflation dynamics at the wholesale level, contributing to informed economic policymaking and decision-making by various stakeholders.
FAQs
Q: What is the Wholesale Price Index (WPI)?
A: The Wholesale Price Index (WPI) is a measure of the average change in prices received by wholesalers for their goods at the wholesale level. It tracks the price movement of goods at various stages of production before reaching the retail level.
Q: What is the purpose of the Wholesale Price Index?
A: The primary purpose of the Wholesale Price Index (WPI) is to monitor inflation at the wholesale level. It serves as an important indicator for policymakers, economists, and businesses to gauge inflationary pressures in the economy, forecast trends, and formulate monetary and fiscal policies accordingly.
Q: How is the Wholesale Price Index calculated?
A: The Wholesale Price Index (WPI) is calculated by taking a weighted average of the prices of a basket of goods that represent various sectors of the economy. These goods include raw materials, intermediate goods, and finished goods. The weights assigned to different items are based on their importance in the economy.
Q: What are the components of the Wholesale Price Index?
A: The Wholesale Price Index (WPI) comprises three main components: Primary Articles, Fuel and Power, and Manufactured Products. Primary Articles include food, non-food articles, and minerals. Fuel and Power cover items such as coal, electricity, and petroleum products. Manufactured Products encompass goods produced in various industries.
Q: How does the Wholesale Price Index differ from the Consumer Price Index (CPI)?
A: While the Wholesale Price Index (WPI) measures the change in prices at the wholesale level, the Consumer Price Index (CPI) measures the change in prices paid by consumers for a basket of goods and services. The CPI reflects changes in retail prices and is used as a measure of inflation affecting consumers directly, while the WPI provides insights into inflationary pressures within the production and distribution sectors of the economy.
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