October 13, 2010Inflationby EconomyWatch

Wholesale Price Index

The Wholesale Price Index or WPI is the price of a representative basket of wholesale goods. Some countries use the changes in this index to measure inflation in their economies, in particular India - The Indian WPI figure is released every 10 days and influences stock and fixed price markets. The Wholesale Price Index focuses on the price of goods traded between corporations, rather than goods bought by consumers, which is measured by the Consumer Price Index. The purpose of the WPI is to monitor price movements that reflect supply and demand in industry, manufacturing and construction. This helps in analyzing both macroeconomic and microeconomic conditions.

Calculation of Wholesale Price Index

The wholesale price index consists of over 2,400 commodities. The indicator tracks the price movement of each commodity individually. Based on this individual movement, the WPI is determined through the averaging principle. The following methods are used to compute the WPI:

  • Laspeyres Formula (relative method):It is the weighted arithmetic mean based on the fixed value-based weights for the base period. The formula is as follows:
    laspeyres
    laspeyres1
  • Ten-Day Price Index: Under this method, 'sample prices' with high intra-month fluctuations are selected and surveyed every ten days through phone. Utilizing the data retrieved by this procedure and with the assumption that other non-surveyed "sample prices" remain unchanged, a "ten-day price index" is compiled and released.
  • Calculation Method: Monthly price indexes are compiled by calculating the simple arithmetic mean of three ten-day 'sample prices' in the month.
  • Composition of Wholesale Price Index

    The wholesale price index comprises of the following indices:

    • Domestic Wholesale Price Index (DWPI)
    • Export Price Index (EPI)
    • Import Price Index (IPI)
    • Overall Wholesale Price Index (OWPI)

    The WPI covers five commodity groups - agriculture; manufacturing; quarrying; import and export; and mining.


    Features of Wholesale Price Index

    The features of the wholesale price index are:

    • It captures the price movement extensively and is, therefore, taken as an indicator of inflation.
    • The index is published weekly, with the shortest possible time gap of only two weeks.
    • WPI is used to analyze market activity and monetary conditions in an economy.
    • It focuses on the changing nature of the economy of different kinds of services, such as the railways, road transportation, telecommunications and banking.

    These features highlight the utility of this index in monitoring ongoing changes in an economy in order to suggest the need for any adjustment.

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