Wholesale Price Index (WPI)

The wholesale Price Index (WPI) is one of the key macroeconomic indicators of inflation. Wholesale price is generally defined to capture all bulk transactions of goods carried out in the domestic market. In this article, we will see what is wholesale price index WPI, what are the basket of goods under the wholesale price index WPI and their respective weights and the calculation of the wholesale price index WPI.

How to Calculate WPI?

Introduction

The wholesale Price Index (WPI) is one of the key macroeconomic indicators of inflation. Wholesale price is generally defined to capture all bulk transactions of goods carried out in the domestic market. In this article, we will see what is wholesale price index WPI, what are the basket of goods under wholesale price index WPI and their respective weights and the calculation of wholesale price index WPI. In our earlier article, we have discussed what is Consumer Price Index in detail.

What is the Wholesale Price Index (WPI)?

Wholesale Price Index (WPI)

• The wholesale price index WPI is a measure of average wholesale price movement for the economy. It measures the average change in prices of commodities for bulk sale at the level of early stages of a transaction. It gives a fairly good idea of what is happening in the economy.
• In a dynamic world, prices of goods do not remain the same as their demand and supply keep on changing depending on a variety of factors. Prices of some goods may increase while prices of others may decrease and the wholesale price index WPI helps to capture this net average change in the prices of a selected basket of goods.
• In order to adequately reflect the changes that have taken place in the economy, almost all important items being transacted in the economy have been included in the revised basket. WPI basket does not cover services.

• The index basket of the wholesale price index WPI covers commodities falling under 3 major groups –
• Primary articles
• Fuel and Power
• Manufactured products
• To compile the wholesale price index WPI, prices are tracked as under –
• Manufactured Products: Ex-factory price
• Agricultural Commodities: Agri – market (mandi) price
• Minerals: Ex-mines prices

Categorization of Commodities under WPI with % Weights

Categorization of Commodities Under Wholesale Price Index (WPI)

Source: Office of Economic Adviser, Ministry of Commerce & Industry

Calculation of WPI

• Wholesale Price Index is calculated with the base year as 2011-12.
• Weights are assigned to commodities which is used in the calculation of WPI. Weights and number of items in the major groups are as follows :

Categorization of Commodities Under WPI

Compilation of WPI consists of two stages :

1. Price Relatives (Price change) are calculated as follows :

• Ii  =  (Current Price / Base Period Price) × 100
• These elementary indices are the lowest level of aggregation where prices are combined into price indices.

2. In the second stage, these elementary price indices are aggregated using weighted arithmetic mean to obtain higher-level indices.

• WPI = ∑ ( Ii × Wi) / Wi
• Where, 
• WPI = Wholesale Price Index
• Ii         = Index of the ith item
• Wi     = Weight assigned to ith item