Price Indices in India – An Overview

 There are three major indices used in India for comprehensive assessment of prices and production.

(WPI) Wholesale Price Index in India

  • In India, the Wholesale price index (WPI) is the main measure of inflation. The WPI measures the price of a representative basket of wholesale goods. WPI captures price movements in a most comprehensive way.   It is widely used by Governments, banks, industry and business circles.
  • Important monetary and fiscal policy changes are linked to WPI movements.It is in use since 1939 and is being published since 1947 regularly.
  • It is calculated by – Office of the Economic Adviser <In DIPP (Department of Industrial Policy and Promotion) < In Ministry of Commerce & Industry.
  • It is released on three duration basis. A) Weekly: on Every Thursday for Primary Articles and Fuel Group. B) Monthly : On 14th of Every month for all commodities. C) Final:Final list is released every two months (~EIGHT weeks). When they get authentic price data for all commodities.
  • Wholesale price index is divided into three groups: Primary Articles (20.1 percent of total weight), Fuel and Power (14.9 percent) and Manufactured Products (65 percent). Food Articles from the Primary Articles Group account for 14.3 percent of the total weight. The most important components of the Manufactured Products Group are Chemicals and Chemical products (12 percent of the total weight); Basic Metals, Alloys and Metal Products (10.8 percent); Machinery and Machine Tools (8.9 percent); Textiles (7.3 percent) and Transport, Equipment and Parts (5.2 percent).
  • The current  WPI  has a basket of 676 items.
  • Problem with WPI: The major issue with this index is that ‘the general public does not buy at the wholesale’. Thus WPI does not give  real picture of the amount of pressure of increasing prices on the general public. However, the increase in wholesale prices does affect the retail prices and as such give some indication of the consumer prices.
  • Headline WPI: calculated using above all three groups. primary, fuel and power, manufactured products.
  • Core WPI: calculated using non-food manufactured products.                                                                                                                          Core WPI = Headline WPI – (primary + fuel + food mfg. industries)
  • It is calculated using Laspeyres formula for weighted arithmetic mean.Currently , Base year 2004.
    WPI and CPI inflation in india

    WPI and CPI inflation in India

  • The Wholesale Price Index focuses on the price of goods traded between corporations, rather than goods bought by consumers, which is measured by the Consumer Price Index. The purpose of the WPI is to monitor price movements that reflect supply and demand in industry, manufacturing and construction. This helps in analyzing both macroeconomic and microeconomic conditions of an economy.

 Index of Industrial Production (IIP) in India