Updated Apr 13, 2022

What is the Wholesale Price Index?

What is the Wholesale Price Index?

When it comes to retail prices, a wholesale price index (WPI) seems to be an index that monitors and records changes in the prices of items at the stages before they are sold in retail stores. This term referred to items sold in bulk and transferred between corporations or companies rather than between individuals or families. The WPI, usually represented as a ratio or percentage, displays the average price change of the items included in the calculation; it is often used to measure a country's degree of Inflation.

WPI based Inflation

As opposed to items purchased by individuals, changes in the average price of the goods at the wholesale level (commodities supplied in bulk and transacted between firms or organisations) are reflected in the Wholesale Price Index (WPI). As a measure of Inflation, the WPI has several limitations because it does not consider the price of services and does not represent the consumer pricing situation in the nation.

The Ministry of Commerce and Industry's Economic Advisor issues the WPI. When it comes to industry, building, and manufacturing, WPI serves as a barometer for price movements that reflect supply and demand. The WPI index basket is broken down into basic items, fuel and electricity, and manufactured products. The WPI base year was changed in April 2017 from 2004-05 to 2011-12. Because it is the only index updated weekly, WPI is often utilised for short-term policy interventions.

The WPI may also gauge the economy's macroeconomic and microeconomic health. For the whole economy, WPI calculates wholesale transaction-level Inflation. It also lets the government monitor inflation before it reaches retail prices, allowing prompt action. Economic policies such as taxation and trade are based on the WPI-based inflation rate. WPI is used as an indexing technique to design price adjustment clauses by business organisations, legislators, accountants, and statisticians. Economic Inflation is indicated by an increase in WPI and vice versa. An increase in the WPI is used as a gauge for wholesale Inflation in the economy.

WPI Food Index

The WPI Food Index includes commodities from the Manufactured Goods group's 'Food Products' category and the Primary Articles group's 'Food Articles' category. To calculate the WPI Food index, the weighted arithmetic mean of the WPI for "Food Products" under "Manufacture Products" and "Food Articles" under "Primary Article" is used in conjunction with other WPIs.

How does it work?

A monthly report on wholesale pricing indexes (WPIs) is released to indicate the average changes in the prices of items. A comparison is made between the overall costs of the products under consideration in one year and the overall cost of the goods under consideration in the base year. All of the prices again for the base year add up to 100 on the pricing scale. Prices from a previous year are measured to the total for that year, and the difference is given as a percentage change.

Consider the following scenario: the year 2013 is the starting point. Suppose the total price of the items under consideration in 2013 was $4,300, and the total price in 2018 is $5,000. The WPI for 2018 compared to the base year of 2013 is 117 (5000 – 4300 = 700/6 years), which indicates a 17 per cent rise.

Typically, a WPI takes into consideration commodity prices. However, the goods included in the index differ from nation to country. They are also susceptible to modification as necessary to represent the current state of the economy better. The WPIs of some small nations only compare the costs of 100 to 200 goods, but the WPIs of bigger countries often compare the prices of thousands of products.

Several commodities were included more than once because the United States included commodities at different stages of production in its calculation of the World Product Index (WPI). In the case of raw cotton, the index includes the costs of cotton yarn, cotton grey items, and cotton garments, among other things. The United States contained crude resources and consumer products such as fruit or wheat, and apples. In addition, the United States developed indices for almost 100 subcategories.

Conclusion

When a basket of wholesale items is priced, it is known as the Wholesale Price Index (WPI). The World Purchasing Power Index (WPI) focuses on the price of items that are transferred between firms. It does not focus on the products that customers have bought. The primary goal of the WPI is to monitor price drifts that represent demand and supply in the manufacturing, construction, and industrial industries. The World Productivity Index (WPI) assists in measuring the macroeconomic and microeconomic circumstances of an economy.