What does Inflation recorded based on WPI indicates?

Published: 18th Nov, 2022

Context

The country’s wholesale inflation eased to 8.39 per cent in October as the data released by Ministry of Commerce & Industry.

The decline

Decline in the rate of inflation in October, 2022 is primarily contributed by fall in the price of mineral oils, basic metals, fabricated metal products, except machinery and equipment; textiles; other non-metallic mineral products; minerals etc.

About

What is Wholesale Price Index?

A wholesale price index (WPI) measures change in the overall price of goods before they are sold at retail.
This includes the prices charged by manufacturers and, often outside the U.S., wholesalers.
Usually expressed in terms of the percentage change from the prior month or a year earlier, the WPI is an inflation indicator.
Wholesale price indexes are reported monthly to track the overall rate of change in producer and wholesale prices.
The index is set at 100 for its base period, and calculated based on subsequent price changes for the aggregate output of goods.

How a Wholesale Price Index (WPI) Works?

A WPI typically takes into account commodity prices, but the products included vary from country to country.
They are also subject to change, as needed, to better reflect the current economy.
Some small countries only compare the prices of 100 to 200 products, while larger ones tend to include thousands of products in their WPIs.

How does it indicate Inflation? (WPI vs. CPI)

A wholesale price index (WPI) is a measure of inflation based on the prices of goods before they reach consumers.
It includes price rise in food, fuel and all other commodities. The inflation rate expressed in Wholesale Price Index (WPI) usually denotes the ‘headline inflation’.
Though Consumer Price Index (CPI) values are often higher, WPI values traditionally make headlines.
WPI tracks inflation at the producer level and CPI captures changes in prices levels at the consumer level. WPI does not capture changes in the prices of services, which CPI does.
The WPI is dominated by the prices of manufactured goods while the CPI is dominated by the prices of food articles.
As such, broadly speaking, if food prices go up sharply, it will bump up the retail inflation rate far more than it would spike the wholesale inflation rate. The reverse will happen when prices of manufactured products (such as TVs and cars) rise sharply.

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