Wholesale price indexes (WPIs) report monthly to show the average price changes of goods sold in bulk, and they are a group of the indicators that helps to measure the inflation and growth in the economy.

An index that measures and tracks the changes in price of goods in the stages before the retail level.

It is calculated for wholesale prices in which the quantities of the base year and current year are different

Whole Sale Price Index

Initial Usage By – India Philippines

India Used WPI to calculate inflation from 1902 till 1978

RBI Governor D.Subbarao implemented PPI in India.

Most of the Developed countries like United States uses PPI

Countries Used

It is used by the Reserve Bank of India and the Government of India to frame their monetary and fiscal policies and to take appropriate corrective steps during inflationary periods

It is also utilized for purposes like forecasting changes in business conditions indicating supply-demand relationships

Conventionally, it has been used to measure the variations in exchange value or purchasing power of money

Other organizations like the Planning Commission base their various schemes on the price trends revealed by the index numbers of wholesale prices

Functions & Uses

Advantages It represents the wholesale trade transactions of all

the commodities produced and traded in the system It is available on a monthly basis with the least time

lag It is quite handy for purposes of comparisons

Disadvantages Includes only Goods and excludes services Prices are captured mainly through mandis or through

whole sale transaction places They Do not reflect the prices paid by the consumer

Advantages & Disadvantages

Manufactured articles - 64.97% Primary article - 20.12% Fuel, power, light and lubricants  -

14.91%

Each item was assigned equal weight There will be a single price quotation for each

item

Construction methodology

It is calculated on the principle of weighted arithmetic mean, according to the Lasperyre’s formula which has a fixed base-year weighting diagram operative through the entire life span of the series.

I= Σ (Ii . Wi)/Σ Wi Where,

I = Index Number of wholesale prices of a sub group/group/ major group/all commodities

Wi = The weight assigned to the ith item/sub-group/group/major group.

Ii = Index of the ith item/subgroup/group/major group

The monthly WPI at the time of its initial compilation and release is provisional as it does not take into account some of the price quotations that are received belatedly.

The prices of the missing quotations are either repeated or estimated

depending on the nature of the commodity.

Index Calculation

Example

Thus the manufactured products index stands at I = Σ (Ii . Wi)/Σ Wi = 1597.38/14.23 = 38.74Similarly the Primary articles and Manufacturing index can be calculated and assume it is 46.35 and 29.78 respectively

Thus the value of WPI index for the month is ‘x’ is equal to = Fuel, Lights Index + Manufactured products Index + Primary articles Index = 38.74+46.35+29.78 = 114.87

Thus the new manufactured Product index value is =1614.73/41.2=39.16

Corresponding value for the primary articles and manufacturing index At 46.63 and 32.63 respectively

Thus the value of WPI index is at the End of week stands at =39.16+ 46.63+32.63=118.42

Thus the index has grown by 3.09% in the month compared to its value in week ‘x’

For the month ended the inflation rate in India is at 3.09%

 The commodities chosen for the calculation are based on their importance in the region and the point of time the WPI is employed

India used 435 items in 1993-94 676 items in 2010-14

now India has adopted new CPI to measure inflation

Since 2009 it has been made monthly basis of generating WPI

Indian wholesale price index rose 3.74 percent year-on-year in August of 2014, slowing from a 5.19 percent increase in July. It is the lowest rate since October of 2009 mainly due to a fall in prices of vegetables and oil. 

Present Index

WPI comparison

http://www.tradingeconomics.com/india/producer-prices-change

http://pib.nic.in/newsite/erelease.aspx?relid=94679

http://www.cso.ie/en/media/csoie/releasespublications/documents/periodicals/2002/prices_2002.pdf

http://www.wikipedia.org/ http://eaindustry.nic.in/home.asp

Bibliography