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The wholesale price index is used to calculate and monitor the variations in the prices of goods before they are sent to the retail level for selling to the end consumer. This index is also used as a measure of calculating the inflation values in some of the economies of the world. However, in India, the Reserve Bank of India uses the Consumer Price Index to monitor the level of inflation instead of the wholesale price index. The Wholesale Price Inflation Index Rate in India for the retail inflation rate in India is measured by the Consumer Price Index (CPI) in February 2022 is 13.11 %.

In this article on the Wholesale Price Index, we shall discuss what it really is, how it is calculated, its requirements, and a few other details. This will be very useful for UPSC and for aspirants in the UPSC Prelims Exam.

What is the Wholesale Price Index?

The Wholesale Price Index (WPI) tracks monetary value changes at the wholesale level for goods. In contrast, the Consumer Price Index measures consumer-level price changes. In India, the Reserve Bank of India uses the Consumer Price Index to gauge inflation. The base year for WPI shifted from 2004-05 to 2011-12, now covering 697 goods, up from 676. Monitoring both macroeconomic and microeconomic changes, WPI is calculated and released by the Economic Adviser in the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry in India. The new WPI mechanism employs a geometric mean for level averaging, aligning with international standards.

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Major components of the Wholesale Price Index

• The wholesale price index includes three components on a General basis, these are:
• Manufactured items – 64.2 %
• Primary goods – 22.6 %
• Fuel and Power – 13.1 %.

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Issues Associated with the Wholesale Price Index

• The Reserve Bank of India had decided to use the consumer price index to monitor inflation in the country instead of the wholesale price index based on the recommendations of the Urjit Patel Committee.
• Also, under the flexible inflation targeting, the Reserve Bank of India has halted the usage of the wholesale price index to calculate the inflation level in the country.
• Therefore, all the values related to inflation released by the Reserve Bank of India are based on the consumer price index rather than the wholesale price index.
• At present, the wholesale price index is mainly used to calculate the GDP or the gross value added at the current prices to the GDP or the gross value added at the constant prices.
• Moreover, the moderation of GDP based on the newly used base year of 2011 – 12 has enhanced the real GDP to a substantial level in the last few years.
• Also, as the excise duty has also been excluded from the WPI calculation, this has enhanced the lower WPI inflation levels during recent years, which ultimately gives a wrong picture of the real GDP of an economy.

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Inflation at Producer Level

• The producer price index (PPI), which takes into account costs for businesses or product manufacturers, evaluates inflation.
• Since it tracks price changes before they are passed on to consumers, some people think it provides a more accurate forecast of inflation than the CPI.

Inflation at the Wholesale Level

• The Wholesale Price Index (WPI), as opposed to goods purchased by consumers, tracks changes in the average prices of goods supplied in bulk and transferred between corporations or other entities.

Rate of inflation based on the WPI Food Index

• November 2021 – 6.70%
• December 2021 – 9.24%
• January 2022 – 12.96%
• February 2022 – 13.11%
• March 2022 – 14.55%
• April 2022 – 15.08%
• May 2022 – 15.88%

Consumer Price Index (CPI) and its types

• The cost of a variety of goods and services that households purchase is monitored by the Consumer Price Index (CPI).
• The CPI is an estimation based on a number of widely used goods whose prices are regularly gathered.
• Consumer Price Index (CPI) fluctuations in consumer prices are monitored.
• Education, communication, transportation, recreation, apparel, food and drink, housing, and medical care are the eight areas that make up the CPI.
• The CPI is published by the National Statistical Office (NSO), which is a division of the Ministry of Statistics and Program Implementation.
• The CPI’s base year is 2011–2012.
• The CPI is made available each month.

Types of Consumer Price Index (CPI)

• CPI for Industrial Workers (CPI-IW):
  • It attempts to track changes in the price of a certain basket of products and services consumed by Industrial Workers across time.
  • A typical working-class family from one of the following seven economic sectors would be the target market: factories, mines, plantations, ports, railroads, and energy production and distribution.
  • The Labor Bureau produced this list. The Ministry of Labor and Employment governs this.
• CPI for Agricultural Laborers (CPI-AL):
  • The Labor Bureau collects this data to help states update their minimum salaries for agricultural labour.

• CPI for Rural Laborers (CPI-RL):
  • The Labor Bureau produced this list. The Ministry of Labor and Employment governs this.
• CPI for Urban Non-Manual Employees (CPI-UNME):
  • This data is compiled by the Central Statistics Office (CSO), now known as the National Statistical Office (NSO). The Ministry of Statistics and Program Implementation oversees the NSO.

Difference between WPI and CPI

Way Forward

• The Reserve Bank of India can calculate the GDP more accurately by adopting the mechanism of ‘double deflation’.
• Under this, WPI output prices and the deflated input prices are calculated using different indices, which in turn gives a better calculation of the GDP of an economy.
• Currently, the output prices show variation more extremely as compared to the input prices. Hence, the single deflection method usually gives an overestimation of the GDP or the gross value added.
• Therefore, to enhance the accuracy of the GDP calculation, India needs to adopt a double Deflation method instead of the single deflection method.
• For this, the help of WPI can be taken.

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