In October 2023, India’s Wholesale Price Index (WPI), a vital measure of inflation, recorded an annual inflation rate of -0.52%. This represents a decrease from -0.26% in September 2023. Dive into the realm of negative inflation, where price reductions take center stage. Key sectors include chemicals, electricity, textiles, basic metals, food products, and paper saw decreased prices compared to October 2022.
Underlying Influences on Price Trends
The October 2023 deflationary trend is not without influences. A significant contributing factor was a high base effect from October 2022, when wholesale price inflation was at a substantial 8.4%.
Food Prices: A Closer Look at the Wholesale Food Index
When it comes to food prices, the Wholesale Food Index provides a comparative measure. In October 2023, this index increased by 1.07% compared to the same timeframe in 2022. However, within this food basket, there were opposing trends observed. Vegetable prices substantially decreased by 21%, while inflation for paddy and cereals experienced an uptick.
Demystifying the Wholesale Price Index
The WPI represents the price of goods at a wholesale stage, that is, the goods sold in bulk and traded between businesses rather than direct consumers. This differs from the Consumer Price Index (CPI), which encapsulates changes in price levels at the consumer level. Differentiating further, WPI does not capture variations in service prices, an arena covered by CPI.
In India, the Office of Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry publishes the WPI. The base year for the WPI is 2011-2012.
Dissecting Key Terminologies
Understanding WPI requires comprehension of key terms such as the inflation rate, deflation, and the base effect. In the context of WPI, the inflation rate refers to the difference between WPI calculated at the start and end of a year, with the annual percentage increase reflecting the inflation rate. Deflation signifies a decrease in general price level of goods and services and occurs when the inflation rate dips below 0%, resulting in negative inflation. The base effect reflects the influence of prior year inflation on current year’s price levels.
Reflective Insights from UPSC Civil Services Examination
Statements from the 2020 UPSC Civil Services Examination provide additional perspectives. They indicated (a) the weightage of food in CPI is higher than that in WPI, (b) WPI does not capture changes in service prices, unlike CPI, and (c) The Reserve Bank of India now recognizes WPI as its key measure of inflation, influencing policy rate changes. The correct answer was (a) – statements 1 and 2 only.