WPI

Key Highlights

• WPI tracks the average price changes of goods sold in bulk before they reach consumers.

• WPI = (Current Price of Goods/Price of Goods in Base Year) × 100

• WPI looks at the prices of goods traded between businesses, not services.

What is Wholesale Price Index (WPI)?

The Wholesale Price Index (WPI) tracks the average price changes of goods sold in bulk before they reach consumers. It shows how prices change from the perspective of businesses and traders, rather than consumers, and is used to monitor inflation.

What WPI Covers?

WPI looks at the prices of goods traded between businesses, not services. It includes:

• Primary articles: Agricultural products and minerals.

• Fuel and power: Items like petrol, electricity, and coal.

• Manufactured products: A wide range of goods from textiles to machinery.

How WPI is Calculated?

WPI is calculated by comparing the current price of goods to their price in a base year, using the formula:

WPI = (Current Price of Goods/Price of Goods in Base Year) × 100

WPI Vs CPI

WPI measures wholesale prices of goods, while the Consumer Price Index (CPI) measures the prices consumers pay for both goods and services. WPI is more relevant for businesses, while CPI reflects the cost of living for consumers.

Importance of WPI

• Businesses use WPI to understand changes in production costs and to plan pricing strategies.

• Government policies are influenced by WPI to manage inflation, trade, and subsidies.

• Inflation trends are tracked using WPI, especially in the industrial sector.

Limitations of WPI

• It doesn’t include services, which are a large part of the economy.

• It may not fully reflect consumer inflation.

WPI in Inflation Management

A rising WPI indicates higher production costs. If businesses pass these costs to consumers, it can lead to higher retail prices. Policymakers keep an eye on WPI to manage inflation.

WPI Trends in India

WPI in India is influenced by global commodity prices, fuel costs, and agricultural output. For example, an increase in crude oil prices or poor monsoons can sharply raise the WPI.