How to Calculate WPI?
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 WPI, what are the basket of goods under WPI and their respectiev weights and calculation of WPI. In our earlier article, we have discussed what is Consumer Price Index in detail.
What is Wholesale Price Index (WPI)?
- 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 transaction. It gives a fairly good idea as to what is happening in the economy.
- In a dynamic world, prices of goods does not remain same as their demand and supply keeps on changing depending on variety of factors. Prices of some goods may increase while prices of others may decrease and WPI helps to capture this net average change in the prices of selected basket of goods.
- In order to adequately reflect the changes that have taken place in economy, almost all important items being transacted in the economy have being included in the revised basket. WPI basket does not covers services.
- The index basket of the WPI covers commodities falling under 3 major groups –
- Primary articles
- Fuel and Power
- Manufactured products
- To compile 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
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 :
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
- WPI = Wholesale Price Index
- Ii = Index of the ith item
- Wi = Weight assigned to ith item