WPI At 18 Month Low : All You Need To Know

Wholesale Price Inflation (WPI) or producer-based inflation is at an 18-month low of 10.7 per cent in September. This is a sharp contrast from 12.41 per cent in August, which makes it the fourth consecutive month of fall in WPI inflation. However, it is still in double digits for many months. While we measure inflation at the consumer level with Consumer Price Index (CPI), it is necessary to measure it at the wholesale level as well. If the cost of purchase is high for the wholesale purchaser, it will have an impact on the consumer.

But what is WPI?

To put it simply, WPI is used to measure the average change in price in the sale of goods in bulk quantity by the wholesaler. This is not an index that directly concerns the public but does include the sale price from factory/wholesale producers to the point of first purchase, that is, the retailer.

WPI measures price increase or decrease only in goods production. These do not include services, for example, the transportation cost of the goods to the retail purchaser is not included. To extend the example further, it does not include other services like hospitalisation, education, etc. The focus here is only on goods. It also does not include customs and excise duties for export or import even if it is between wholesaler and retailer.

It does not include every product ever produced in India. The bracket is limited to 697 products. These include fuel and power (13.2 per cent), cereals (2.8 per cent), textiles (4.9 per cent), minerals (3.2 per cent), and manufactured food and beverages (11.8 per cent), among other manufactured products. These numbers vary depending on what is being bought more at a wholesale rate. It is released weekly for primary articles, power, and fuel. The index is issued by Economic Advisor in the Ministry of Commerce and Industry, with the base year of 2011-12. The prices are revised every five years, for which the Ramesh Chand committee has been made recently as well.

Why are the prices rising?

As per a release by the Department for Promotion of Industry and Industrial Trade, “The inflation in September was primarily contributed by the rise in prices of mineral oils, food, articles, crude petroleum and natural gas, chemicals and chemicals products, basic metals, electricity, textiles, etc compared to the corresponding month of the previous year.”

Source: DPIIT

As we can see above, the WPI inflation has come down in all segments, from August to September. In numerical terms, primary articles are down by 1.34 per cent, fuel and power by 0.13 per cent, manufactured products by 0.49 per cent, and food index by 0.45 percent. In fact, it has been going down steadily.

Why do we need WPI when we have CPI?

Firstly, it helps predict the inflation consumers will face. Secondly, it narrates the manufacturing side of the story, and what is lacking (more manufacturing price means the retailer will have to pay more for every product). Thirdly, the goods included in WPI are not identical to the goods included in CPI. For example, housing is 42.3 per cent CPI, but not a separate category in WPI. When the products measured as different, there will be a difference in the rate of inflation will be. Fourthly, when we calculate CPI, a lot of other things like transport and crude oil prices of the retailer are also included.