WPI and CPI Inflation Rates


The Wholesale Price Index was the main index for measurement of inflation in India till April 2014 when RBI adopted the new Consumer Price Index as the key measure of inflation. At any given point of time, inflation is attributed to both sets of factors. Sometimes one may be more potent than the other.

Prices generally rise in each level till the commodity finally reach the hand of consumer. Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc. The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use. It measures price changes from the perspective of a retail buyer. It is released by the National Statistical Office .

The IIP index data, once released, is also available on the PIB website. CSO or Central Statistical Organization operates under the Ministry of Statistics and Programme Implementation . There is a lag of six weeks in the publication of the IIP index data after the reference month ends.

producer price index definition

To provide estimates of inflation at the wholesale transaction level for the economy as a whole. This helps in timely intervention by the Government to check inflation in particular, in essential commodities, before the price increase spill over to retail prices. CPI measures the average change in prices of fixed baskets of goods and services that households purchase for the purpose of consumption. It provides estimates of inflation at the wholesale transactions level for the economy as a whole. This helps in timely intervention by the Government to check inflation, in particular inflation in essential commodities, before the price increase spills over to retail prices.

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When they get authentic price data for all commodities. Inflation targeting involves using monetary policy to keep inflation close to the agreed target. Index of Industrial Production data or IIP as it is commonly called is buying gold a good investment is an index that tracks manufacturing activity in different sectors of an economy. CPI covers only consumer goods and consumer services while WPI covers all goods including intermediate goods transacted in the economy.

producer price index definition

WPI is based on wholesale prices for primary articles, administered prices for fuel items and ex-factory prices for manufactured products. On the other hand, CPI is based on retail prices, which include all distribution costs and taxes. Over time it can be easy to measure the price changes of individual products, but human needs go beyond just one or two products. Individuals require a huge, diversified set of products along with a host of services for leading a comfortable life. The commodities include food grains, metal, fuel, utilities like electricity and transportation, and services like health care, entertainment, and labour. Thus, inflation strives to measure the overall impact of price changes for a diversified set of products and services over time.

It is generally agreed that high rates of inflation is caused by an excessive growth of the money supply. On the other hand, cost-push factors are those due to which there may be shortfall in supply of goods/services and/or rise in the cost of production of goods/services. Demand-pull factors may be those due to which there is an increase in the demand for goods and services in general leading to rising prices. Stagflation is the combination of high unemployment with high inflation.

Primary Sidebar

The ratio of gross value added to value of output differs significantly in the sectors covered under WPI. Some of the important indices like Wholesale Price Index , Consumer Price Index , etc. give a fairly good idea as to what is happening in the economy. We aim to do the above by explaining various economic terms in a simple and a lucid manner. This will be especially beneficial for the students who are going to give their first attempt. Asian stocks welcome U.S. inflation relief, but wary of FedOvernight Wall Street surged, before paring gains to leave the S&P 500 up 0.7% at the close.

  • CPI Food group has a weight of 39.1 per cent as compared to the combined weight of 24.4 per cent in WPI basket.
  • Since, RBI has adopted Inflation Targeting, CPI is used as nominal anchor for conduct of monetary policy in India.
  • In any economy, generally two sets of factors result in inflation — Demand-pull factors and Cost-push factors.
  • This is the most popular inflation rate calculation methodology in India.
  • The rise or fall in prices at wholesale level spill over to the retail level after a lag.
  • In India, inflation is measured by a central government authority, and it is in charge of embracing measures to ensure a smooth running of the economy.

We assign weight to each commodity relative to its importance. Rise in imports is likely to depriciate the exchange rate. Exports decrease due to rise in input cost making the final product less attractive.

Banning exports of commodities such rice and oils. Allowing imports of the commodities which are scarce in market. Inflation can be viewed positively or negatively depending on the individual viewpoint. Those with tangible assets, like property or stocked commodities, may like to see some inflation as that raises the value of their assets.

Hospitality chain Oyo’s initial public offering is likely to be delayed by three months as India’s capital markets regulator has asked the Ritesh Agarwal-promoted startup to update its draft IPO papers. WPI is used as the main deflator in estimating many macro-economic variables including for deflating the core ingredients in the annual and quarterly national accounts and forecasts of GDP. The impact of revision in WPI would thus get reflected in all those variables which uses WPI as a deflator. In the Primary Articles, new vegetables and fruits such as Radish, Carrot, Cucumber, Bitter Gourd, Mosambi, Pomegranate, Jack Fruit, Pear etc have been added. In the mineral group items like Copper Concentrate, Lead Concentrate and Garnet have been added whereas Copper Ore, Gypsum, Kaolin, Dolomite, Magnesite have been deleted. WPI is used as deflator for many sectors of the economy including for estimating GDP by Central Statistical Organisation .

New, broader price index to have 2004-05 as base

According to him, the new PPI should also include prices of imported goods, which have begun to increasingly find their way into the consumption basket of select consumer groupings. You need to import goods at lower prices to satiate the needs of the people else they would be forced to buy domestic products at a higher price and this too is not favorable. What is the impact of inflation in Import and Export? Several article say that it helps in boosting Export because the currency is weak when inflation in high.

producer price index definition

Boost in the prices of goods and services is another factor to consider because the involved labour ultimately does expect and demands more costs/wages to sustain their cost of living. This winds to a further rise in the prices of goods. In India, inflation is measured by a central government authority, and it is in charge of embracing measures to ensure a smooth running of the economy. One of the central government authorities that measure inflation is the Ministry of Statistics and Programme Implementation.

Similarly, the movement in prices of non-tradable items included in the CPI basket widens the gap between WPI and CPI movements. The relative price trends of tradable vis a vis non-tradable is an important explanatory factor for divergence in the two indices in the short term. Thus they do not provide a true picture of price fluctuations of various goods and services consumed by the general population in the country over a period of time. At present, separate series of index numbers are compiled to capture the price movements at retail and wholesale level in India. Economists measure the price level with a price index.

Both policies lessen inflation by lowering the growth of the aggregate demand. If the economic growth is getting rapid, then, reducing the growth of aggregate demand will reduce inflationary pressures without causing a recession. In case of railways, price movement would be tracked for freight tariff and passenger fares. On the other hand, the index of banking would include direct services and fees. Since, RBI has adopted Inflation Targeting, CPI is used as nominal anchor for conduct of monetary policy in India. [Monetary Policy Committee is mandated to keep CPI in range 2% – 6%.

How to measure Inflation rate?

Money loses value so fast that business and employee income can’t keep up with costs and prices. Foreign investors avoid the country, depriving it of needed capital. The economy becomes unstable, and government leaders lose credibility. Galloping inflation must be prevented at all costs. Creeping or mild inflation is when prices rise 3% a year or less. This kind of mild inflation makes consumers expect that prices will keep going up.

Causes of Inflation

The core inflation rate measures rising prices in everything except food and energy. That’s because gas prices tend to escalate now and then. Higher gas costs increase the price of food and anything else that has large transportation costs.

WPI Food Index along with CPI Food Price Index would help monitor the food inflation effectively in India. In Indian context, the derivation of core inflation by exclusion of food and energy from CPI/WPI discards a substantial portion of the commodity basket. So the price movement of the remaining commodities may not be representative of the underlying inflationary trend. Although these prices have substantial effects on the overall index, they often are quickly reversed.

This means that the cost of 1Kg of rice was Rs. 20. This week when you approached the same shop-keeper and paid Rs.100 to get rice, he gave only 4 Kg of rice. He also explained that the price of rice has increased, and now it is Rs.25 per Kg. Base Year for CPI is 2012.Recently, the Ministry of Labour and Employment released the new series of Consumer Price Index for Industrial Worker (CPI-IW) with base year 2016. Thus, we can conclude that too much inflation can be deemed bad for an economy, and too little inflation can also be considered harmful.

WPI does not consider the consumer prices whereas the CPI measures changes only in major commodities at the retail level. Thus, the changes at the producer level are ignored. “Recent inflation has been concentrated in primary articles, whose share will go down further in the new series, while manufactured products, whose share will rise, might show a levelling off," he says. https://1investing.in/ On the basis of population coverage, the inflation indices are developed to understand the levels of inflation for certain sets of population such as consumers, producers, retailers, wholesalers etc. Such indices are called Consumer Price Index , Producer Price Index , and Wholesale Price Index etc. This type of strong, or pernicious, inflation is between 3-10% a year.

So the inflation rate is 25%, which is obviously a very high rate. Overall, each index denotes the average weighted price change for the given components that may apply overall in the economy, sector, or commodity level. Inflation is a market situation in which the price of goods and services increases consistently over a period of time. So inflation reduces the value of money hence too much money chases too few goods.

In other words, inflation can sometimes provide businesses with the opportunity of gaining pricing power and increase in their profit margins. If profit margins are on the rising side, it means the prices, which companies charge for their items, are rising at a quicker rate than increases in production costs. Do bear in mind that monetarism is a famous theory as it profoundly explains the connection between inflation and the money supply of an economy.

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