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Wholesale Price Index

WPI represents the change in commodities prices at the wholesale level. Also, read the importance of WPI and the difference between WPI and CPI.

The Wholesale Price Index (WPI) is a crucial metric for determining inflation in a country. WPI is compiled and released by the Office of the Economic Adviser in the Ministry of Commerce and Industry’s Department of Industrial Policy and Promotion.

Based on the WPI Food Index, the inflation rate jumped from 5.28 per cent in March 2021 to 7.58 per cent in April 2021. Final Index for February 2021-The final Wholesale Price Index and inflation rate for ‘All Commodities’ (Base: 2011-12=100) for February 2021 were 128.1 and 4.83 per cent, respectively.

Wholesale Price Index number (WPI)

The wholesale price index number represents the price of a basket of wholesale items. WPI index is concerned with the cost of goods sold between businesses. It does not focus on consumer-purchased commodities. WPI’s major goal is to track pricing changes in manufacturing, construction, and industry, representing demand and supply. WPI aids in measuring an economy’s microeconomic conditions and macroeconomics.

Importance of WPI index

  • The inflation rate, which is derived using the Wholesale Price Index (WPI), is an important metric for tracking price changes.
  • WPI is widely used by the government, banks, industry, and business circles since it captures price variations comprehensively.
  • WPI movements are frequently linked to significant monetary and fiscal policy shifts.
  • Similarly, the movement of the WPI is a key factor in the formation of trade, fiscal, and other economic policies by the Indian government.
  • Escalation clauses in the supply of raw materials, machinery, and construction work are also based on the WPI indexes.
  • The WPI is used to deflate various nominal macroeconomic indicators, including GDP (GDP).

Let us dive a bit into the details of the wholesale price index and consumer price index.

Wholesale Price Index (WPI) in India

Inflation rates are generally calculated using the WPI and CPI (Consumer Price Index). In India, inflation rates are calculated using the Wholesale Price Index (WPI), which the Ministry of Commerce and Industry publishes. The Consumer Price Index (CPI) is a weighted average of prices for a basket of consumer goods and services consumed by households, such as transportation, food, and medical care. In September 1974, India had its highest inflation rate of 34.68 per cent. In May 1976, the lowest rate was -11.31 per cent.

Consumer Price Index Number

The consumer price index is often used to look at the average weight of a price for a collection of products and services, including food, transportation, and medical care. It calculates the average change in pricing for the basket of items and services that the client is expected to spend. Pricing changes associated with the cost of living are approached using changes within customer price index numbers. The customer index number is a useful metric for identifying periods of deflation and inflation. It’s also known as an economic metric.

Consumer Price Index Number for Industrial Workers

The consumer price index for industrial employees is calculated to track price changes for a specific category of goods and services over time. This is absorbed by a certain demographic, in this case, workers in the manufacturing industry. The consumer index is compiled for all industrial workers in 70 cities around the country with significant industrial importance. These 70 centres were distributed to all states in their industrial growth.

Each month, the indices of all 70 centres are collected and released based on weights obtained from working-class families. It is also based on the expenditure survey taken between 1981 and 1982 and current prices of individual commodities collected from 226 markets served by 70 centres. The All-India Index, likewise a weighted average, is calculated using the 70 centres.

In addition, the Labour Bureau collects and delivers indices from the other six centres to suit the needs of specific index consumers. Aside from serial data, the magazine also includes information like inflation rates, all-India products, and connecting factors for new and old series, among other things.

Applications of the Consumer Price Index Number

The consumer price index number represents the change in consumer prices. As a result, it assists the government in formulating a number of policies relating to taxation, price, exports, and imports of all commodities.

  • It is used to give staff allowances and other incentives.
  • It is also used to determine the purchasing power of a unit of currency.
  • It also compares changes in different groups’ probability of survival.
  • Using the index number, data on wages, living costs, and national income are likewise deflated.
  • It also serves as an economic indicator, similar to financial instruments and commodity prices.
  • Acts as a policymaker at the global, state, and national levels.

Conclusion

In the above notes, we have read about wholesale and consumer prices. A wholesale price index (WPI) measures and monitors changes in the price of items before they reach the retail level. This is a term used to describe goods sold in large quantities and transferred between entities or businesses (instead of between consumers). The WPI, which is usually represented as a ratio or percentage, displays the average price change of the products covered; it is frequently used to measure a country’s level of inflation. Don’t skip these notes if you are preparing for an upcoming examination.