Published: 19th Apr, 2024
Context
India’s wholesale price inflation quickened to a three-month high of 0.53% in March, from 0.2% in February, with the food index rising 4.65%.
About
- 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 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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