Wholesale Price Index vs Consumer Price Index, Producer Price Index

 

PRICE INDEX:

• The price index is an indicator of the average price movement of a fixed basket of goods and services over time . The basket of goods and services is decided considering whether the changes are to be measured in retail, wholesale, or producer prices etc.
• The basket will also vary for economy-wide, regional, or sector specific series.
• The weights of various items in CPI basket are assigned as per the expenditure by the consumers on different items and these weights remain fixed for next 5/6 years.
• So, this time basket revision is due since 2011-12 but we have not been able to change weights since 2011-12 due to demonetization, GST, Covid.

At present, separate series of index numbers are compiled to capture the price movements at retail and wholesale level in India.

Wholesale Price Index:

• WPI represents the price of goods at a wholesale stage i.e. goods that are sold in bulk and traded between organizations instead of consumers. 
• It is released on a monthly basis by Office of the Economic Advisor, in Department of Industrial Policy and Promotion (DIPP) ,Ministry of Commerce &Industry.
• The index basket of the present 2011-12 series has a total of 697 items.
• It includes only goods and not the services.
• The commodities are chosen based on their significance in the region.
• The constituents of WPI in decreasing trend are: manufacturing (64 %) ,(23 %) and (13 %).
• Food index in WPI comprises of 24.38 % constituting food articles from primary and food products from manufacturing indexes.
• WPI is the basis of GDP Deflator.

CONSUMER PRICE INDEX (CPI)---

A consumer price index (CPI) measures changes in the price level of a market basket of consumer goods and services purchased by households.

The CPI is released on a monthly basis on 12th of every month by National Statistical  Office (NSO),Ministry of Statistics and Programme Implementation (MOSPI).

Initially,CPI is compiled for the following:

1. Industrial Workers (IW) (base 2001)

2. Agricultural Labourer (AL) (base 1986-87) 

3. Rural Labourer (RL) (base 1986-87)

4. Urban Non-Manual Employees (UNME) (base 1984-85),

• The first three indices  are compiled by the Labour Bureau in the Ministry of Labour and  Employment.
• The first three are still compiled by The GOI while the fourth index compiled by National Statistical Organisation (NSO) has been discontinued.
• AICPI (IW) is used in calculating the central government Dearness allowance on a   quarterly basis.

NEED FOR NEW CPI SERIES:

• These four CPIs reflect the effect of price fluctuations of various goods and services consumed by specific segments of population in the country. 
• These indices did not encompass all the segments of the population and thus, did not reflect the true picture of the price behaviour in the country as a whole.  

Hence, New Series of CPI was started in 2012.

• The new series, with 2010 as the base year, also includes services, which is not the case with the WPI series.
• Basket comprises of 448 items for rural and 460 items for urban.
• For all India, basket comprises of 299 items.
• Thus, now Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation has started compiling a new series of CPI for the :

(a) CPI for the entire urban population viz CPI (Urban);

(b) CPI for the entire rural population viz CPI (Rural)

(c) Consolidated CPI for Urban + Rural will also be compiled based on above two CPIs

Why CPI is better than WPI? :

• CPI reflects price rise driven by potential consumer demand and available supply—is a better indicator of inflation for guiding monetary policy decisions than WPI inflation.
• WPI excludes prices of services such as education, healthcare, and rents. However, services now account for nearly 60 per cent of GDP and a vast majority of these services are not traded with other countries. 
• Conversely, the new CPI measure assigns nearly 36% weightage on services and includes price changes in housing, education, healthcare, transport and communication, personal care and entertainment

Producer Price Index (PPI) :

• PPI measures the average change in prices received by the producer and excludes any indirect taxes.
• PPI weights are derived from Supply Use tables covering both goods and services.
• Producer Price Index has replaced Wholesale Price Index in most countries.
• In 2019, GOI constituted a working group for revision of the current series of WPI that has 2011-12 as its base year.
• PPI globally tracks price movements in both goods and services.
• PPI is considered conceptually more consistent with the System of National Accounts for use as deflator.