Starting off with a noteworthy update from the Ministry of Commerce and Industry, data indicating that the Wholesale Price Index (WPI) in India fell to a close three-year low with a deflation rate of (-) 0.92% in April has recently been released. The most recent fall into negative territory, occurring after 33 months, is predominantly attributed to lowered prices across various domains. Essential metals, food products, mineral oils, textiles, non-food articles, chemical products, rubber goods, and paper products experienced this dip in prices.
Understanding the Wholesale Price Index
The Wholesale Price Index or WPI is an instrument that tracks fluctuations in prices of goods traded in bulk by wholesale businesses. It’s a widely used indicator that measures inflation in the Indian context. However, it has been criticized as it only reflects prices at the wholesale level, not retail.
In 2017, the base year of the All-India WPI was revised from 2004-05 to 2011-12. The weightage structure of WPI is as follows: All Commodities weigh 100%, among which Primary Articles hold a 22.6% weightage. Fuel & Power and Manufactured Products have a weightage of 13.2% and 64.2% respectively. The Food Index, comprising ‘Food Articles’ from Primary Articles group and ‘Food Products’ from Manufactured Products group, stands at 24.4%.
Factors Influencing WPI Inflation
According to experts, the rate of WPI inflation is expected to remain moderate due to what is known as the high base effect. Another factor is the decline in global commodity prices which is likely to help maintain a lower inflation level for manufactured goods. Lastly, food inflation and monsoon prospects that can significantly influence the market conditions and prices of commodities like wheat will also play a part.
The Difference Between WPI and CPI
WPI and Consumer Price Index (CPI) are two different indices that measure inflation, the former at producer level and later at consumer level. While both measure inflationary trends within the broader economy, the weightages allotted to food, fuel and manufactured items in each vary. WPI focuses more on manufactured goods and does not capture changes in service prices—a feature present in the CPI which also offers more weightage to food items. The base year for WPI is 2011-2012 while CPI uses 2012.
UPSC Civil Services Examination: Previous Year Question
In previous years’ UPSC Civil Services Examination, several questions regarding the Indian economy were based on inflation- particularly demand-pull inflation- and its causes. For instance, one question asked candidates to identify factors leading to demand-pull inflation from a given list. Another question required candidates to consider three statements and determine their correctness pertaining to WPI and CPI.
This article is primarily based on information sourced from The Indian Express.