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The wholesale pricing index (WPI) tracks the typical change in the cost of items supplied in large quantities by wholesalers to retailers. It is one of the economic measures of inflation, along with the consumer price index (CPI) and the producer price index (PPI).
Primary goods, fuel and power, and manufactured goods are the three main types of goods covered by the WPI. Based on its significance to the economy, each category is given a different weight when calculating the WPI. For instance, the weights of primary materials are 22.62%, power and fuel are 13.15%, and manufactured goods are 64.23%.
In order to calculate the WPI, a base year is chosen and given a value of 100. Then, a percentage is calculated by comparing the prices of the products in each category to those in the base year. The WPI of a good, for instance, is 150 if the base year is 2011–12 and the price of the good in 2020–21 is 150% of the price in 2011–12.
The WPI is helpful for businesses, consumers, and policymakers since it captures changes in the cost of production and distribution of commodities. A high WPI shows rising inflation, which suggests that money's purchasing power is declining. When the WPI is low, inflation is either stable or declining, which means that the buying power of money is high.
The WPI can be used to predict future inflation and economic growth trends. For instance, if the WPI for gasoline and power rises, this could result in higher electricity and transportation prices, which could have an impact on other economic sectors. Similar to how a decline in the WPI for manufactured goods may point to a slowdown in demand or an excess of supply, which may have an impact on an industry's profitability and employment levels.
The WPI does have certain limitations, though. One of them is that it fails to account for changes in the cost of services, which make up a significant portion of the economy. The fact that it does not account for the real prices paid by consumers—who can be subject to different taxes, subsidies, markups, or discounts than wholesalers—is another drawback. Therefore, to obtain a more complete picture of the economic situation, the WPI should be used in conjunction with other measures of inflation.
