WPI TO PPI (Syllabus: GS Paper 3 – Economy)

News-CRUX-10     5th July 2024        

Context: The country will have a Producer Price Index (PPI) to gauge the price pressures in the next few months, in addition to the extant consumer price index, and wholesale price index (WPI) may be on its way out.

Wholesale Price Index (WPI)

  • About: The WPI is a gauge used to monitor and record fluctuations in the prices of bulk goods at the wholesale level within India.
  • Published by: Office of Economic Adviser, Ministry of Commerce and Industry.
  • Base year: WPI has been revised from 2004-05 to 2011-12 in 2017.
  • Formula: WPI = (Total value of the basket of goods and services at current prices / Total value of the basket of goods and services at base year prices) x 100
  • Component of WPI: Manufactured products = 65% approx (64.2% now)

oPrimary articles = 20% approx (22.6% now)

oFuel and power = 15% approx (13.1% now)

  • India is one of the few countries that still uses WPI. All members of the G-20, including China, have PPI. PPI globally tracks price movements in both goods and services.

Producer Price Index (PPI)

  • About: It is a family of indexes that measures the average change over time in selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller.
  • Calculation: PPI = (Value of Total Output at Current Prices ÷ Value of Total Output at Base Year Prices) x 100
  • Coverage of PPI: Mining, Manufacturing, Agriculture, Fishing, Forestry, Gas, Electricity, Waste and Scrap materials.

Differences Between PPI and WPI

  • Measurement Focus: PPI measures the average change in prices received by producers and excludes indirect taxes.
  • WPI captures price changes at the point of bulk transactions and may include some taxes and transportation costs.
  • Adjustment for Bias: PPI removes the multiple counting bias inherent in WPI, providing a more accurate representation of price changes.
  • Inclusion of Costs: PPI excludes additional costs imposed by taxes and transportation, focusing solely on the price changes of goods and services.