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WHOLESALE PRICE INDEX AND
INFLATION
Introduction
Price Index
It is a normalized average of prices for a given class of goods or services in a given region, during a given interval of time
Wholesale Price Index
It is the price of a representative basket of wholesale goods.
Brief History
Firstly used in Great Britain in 1886
After this it was used in US in 1893
In INDIA it was used in 1942 for the first time
Inflation Inflation rate is the rate at which prices of goods and
services increase in its economy. Since it's practically impossible to find out the average change in prices of all the goods and services traded in an economy due to the sheer number of goods and services present, a sample set or a basket of goods and services is used to get an indicative figure of the change in prices, which we call the inflation rate.
If P0 is the current average price level and P − 1 is the price level a year ago, the rate of inflation during the year might be measured as follows:
Inflation Rate= P0 P-1/P-1 X 100%
Types Of Inflation
There are basically two main types of Inflation:
Cost-push Inflation
Example: The oil crisis of the 1970s, wherein price increases of a key imported constituent impacted the prices of goods across industries.
Demand pull Inflation
Inflation
Reasons for selection of WPI as a measure of Inflation
There are many methods to calculate inflation like CPI(Consumer Price Index), COLI(Cost Of Living Indices), PPI(Producer Price Index) etc, but WPI is used because of the following characteristics:
Reasons for selection of WPI as a measure of Inflation
WPI uses a sample set of 435 commodities for inflation calculation
The price from wholesale market is taken for the calculation
WPI is available for every week It has a time lag of two weeks, which means WPI
of the week two weeks back will be available now. WPI is often seen as a comfortable tool to take
measure against price rise by the policy makers as it gives direction before the commodity actually hits the market
Inflation & WPI
Inflation & WPI
14
12
10
8
6
4
2
07/5/2008 8/5/2008 9/5/2008 10/5/2008 11/5/2008 12/5/2008 1/5/2009 2/5/2009 3/5/2009 4/5/2009 5/5/2009
Inflation (%)
Inflation & WPI
250
240
230
220
210
5/1/
2008
9/2/
2008
15/0
3/20
08
19/0
4/20
08
24/0
5/20
08
28/0
6/20
08
2/08
/200
8
6/09
/200
8
11/1
0/20
08
15/1
1/20
08
20/1
2/20
08
24/0
1/20
09
28/0
2/20
09
04/0
4/20
09
9/05
/200
9
All Commodity
Inflation & WPI260
255
230
220
250
5/1/
2008
9/2/
2008
15/0
3/20
08
19/0
4/20
08
24/0
5/20
08
28/0
6/20
08
2/08
/200
8
6/09
/200
8
11/1
0/20
08
15/1
1/20
08
20/1
2/20
08
24/0
1/20
09
28/0
2/20
09
04/0
4/20
09
9/05
/200
9
Primary Articles
245
240
235
225
Inflation & WPI385
375
325
315
365
5/1/
2008
9/2/
2008
15/0
3/20
08
19/0
4/20
08
24/0
5/20
08
28/0
6/20
08
2/08
/200
8
6/09
/200
8
11/1
0/20
08
15/1
1/20
08
20/1
2/20
08
24/0
1/20
09
28/0
2/20
09
04/0
4/20
09
9/05
/200
9
Fuel, Power, etc
355
345
335
Items Of WPI
Items Included in WPI
There are 435 items included in the WPI.○ Out of these 435 items, ‘primary articles’ (food
items and non-food items like jute etc) contributes 98 items, “fuel, power, light and lubricants” 19 items and “manufactured products” 318 items. Primary article has assigned a weight of 22.02 per cent, fuel, power, light and lubricants has been given weight of 14.23 per cent while manufactured products has been give a weight of highest 63.75 per cent.
Items Included in WPI
Pri-mary Arti-cles22%
Fuel, Power, Lieght14%
Manufactured Products
64%
Percentage
Calculation of WPI
Wholesale price index aggregation method is based on Laspeyres formula as below:
I= S (Ii x Wi) / S Wi
Where, I = Index numbers of wholesale prices of a sub-
group/group/ major group/all commodities
S = represents the summation operation,Ii = Index of the ith item / sub- group/ group/
major group.Wi = Weight assigned to the ith item of sub-
group/group/ major group.
Problems & Suggestions
Measuring B.P. using thermometer.
Erroneous method of calculating inflation.
Very old base
Not for mango man (aam aadmi)
Practically useless / sooo outdated
Have Saridon , Campa cola,Pagers,Dalda
Coco cola, Crocin, Refined oil, Mobiles are missing
PPI also includes taxes and transport charges
Service sector no share
Consumer Price Index
Four different types of C.P.I. In India.
Also covers poorest section of society
It shows what consumers are paying
Less closely tracked than W.P.I.
Less no. of items included
Released monthly not weekly
Too much lag in reporting it every month
Consumer Price Index
Views of N.S.C.
Views of Economists
Views of Mr. Finance minister
Ignorance of people
Urgent Action IS Needed
Pradeep Vikas Pradeep Manish Manish
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