WPI

🌳The wholesale price index is an index that measures and tracks the changes in the price of goods in the stages before the retail level.

🌳WPI is used as a measure of inflation in some economies.

🌳WPI includes three components viz,

Manufactured products - 64.2%

Primary articles - 22.6%

Fuel and power - 13.1%

Instead of the earlier 2004-05, base year for the WPI will be 2011-12.

The  number of items covered in the new series of the WPI has increased from 676 to 697.

What are the issues with WPI

🌳Following the Urjit Patel Committee recommendations, the RBI Act has been amended and flexible inflation targeting (FIT) has been put in place with CPI inflation as the nominal anchor.

🌳Under the FIT, as the RBI has been mandated to achieve price stability measured in terms of CPI inflation, the use of WPI inflation has been completely done away with.

🌳All projections relating to inflation are currently done in terms of CPI.

🌳As of now, WPI is predominantly used for converting GDP/GVA at current prices to the same at constant prices.

🌳In fact, the GDP deflator (often argued as the true indicator of inflation), which is defined as a ratio of GDP at current prices to GDP at constant prices multiplied by 100, closely tracks WPI inflation.

🌳The sharp decline in the GDP deflator and the dramatic decline in WPI inflation coincided. This contributed significantly to real GDP growth in India.

🌳Also, separate services sector input/output price indices are required to deflate services sector GDP for which WPI is anyway not appropriate.

🌳One of the striking features of the new WPI series is that the item level averaging is being done by using geometric mean. This is as per international best practice.

🌳The geometric mean itself has significantly moderated WPI inflation, besides other factors such as change in the composition of basket.

🌳Moderation of WPI as per revised base has pushed up real GDP considerably during recent years.

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