Business Standard
You are here » Home » WPI-based Inflation

WHAT IS WPI-BASED INFLATION

The Wholesale Price Index (WPI) reflects changes in the average prices of goods at the wholesale level — that is, commodities sold in bulk and traded between businesses or entities rather than goods bought by consumers. There are certain limitations in using WPI as a measure for inflation, as WPI does not consider the price of services, and it does not reflect the consumer price situation in the country.
 
WPI is released by the Economic Advisor in the Ministry of Commerce and Industry. The purpose of WPI is to inspect movement in prices of goods that reflect supply and demand in industry, construction and manufacturing. The index basket of WPI categorises commodities under three groups — primary articles, fuel and power & manufactured products.
 
In April 2017, the government revised the base year for WPI from 2004-05 to 2011-12. WPI is extensively used for short-term policy intervention as it is the only index that is available on a weekly basis.
 
WPI also helps in measuring macroeconomic and microeconomic conditions of the economy. WPI provides estimates of inflation at the wholesale transaction level for the economy overall. It also helps in timely intervention by the government to monitor inflation before the price hike spills over to retail prices.
 
The WPI-based inflation is used by the government in preparation of fiscal, trade, and other economic policies. Business organisations, policymakers, accountants, and statisticians use WPI as an indexing tool to formulate price adjustment clauses. Rise in WPI indicates inflationary pressure in the economy, and vice versa. The extent of rise in WPI is used to measure the level of wholesale inflation in the economy.
 

RELATED BUDGET TERMS

WHOLESALE INFLATION NEWS