WPI - ECONOMY

News: February wholesale inflation eases to 3.85%

 

What's in the news?

       Inflation based on the Wholesale Price Index (WPI) moderated to a two-year low of 3.85% in February from 4.73% in January, with manufactured product's inflation cooling from 3% in January to a little under 2%, and primary articles, food and fuel and power recording milder downturns in the pace of inflation from a month earlier.

       Base effects also played a role as February 2022 had clocked a 13.43% uptick in wholesale prices.

 

Key takeaways:

       Decline in the rate of inflation in February, 2023 is primarily contributed by fall in prices of crude petroleum & natural gas, non-food articles, food products, minerals, computer, electronic & optical products, chemicals & chemical products, electrical equipment and motor vehicles, trailers & semi-trailers.

       Onion prices continued to fall year-on-year for the 18th straight month since September 2021, with February 2023 recording the sharpest drop of 40.14% in wholesale prices amid this deflationary streak.

       Vegetables inflation contracted for the fourth successive month with prices falling 21.5% from February 2022 levels.

       Retail cereals inflation has accelerated close to 17% in February, wholesale inflation in the critical food item eased to a three-month low of 13.95%.

       Wholesale inflation in fruits (7%), and milk (10.33%) also marked fresh highs in recent times and were higher than consumer level experience of price rise in February, indicating there may be room for more retail price hikes in coming months.

 

WPI:

What is the Wholesale Price Index?

       The Wholesale Price Index is an index that measures and tracks the changes in the price of goods in the stages before the retail level.

       The base year for the WPI will be 2011-12.

 

Released by:

       WPI is Published by the Office of Economic Adviser, Ministry of Commerce and Industry.

 

Components:

WPI includes three components:

       Manufactured products - 64.2%

       Primary articles - 22.6%

       Fuel and power - 13.1%

                        (M > P> F&P>)

       The number of items covered in the new series of the WPI has increased from 676 to 697.

       The WPI does not capture changes in the prices of services, which CPI does.

 

Go back to basics:

What is Inflation?

       Inflation is defined as a situation where there is sustained, unchecked increase in the general price level and a fall in the purchasing power of money.

 

Core Inflation:

       Core inflation is the change in the costs of goods and services, but it does not include those from the food and energy sectors.

       This measure of inflation excludes these items because their prices are much more volatile.

 

CPI:

       It measures price changes from the perspective of the retail buyer.

       The National Statistical Office publishes it.

       The CPI calculates the difference in the prices of commodities and services purchased by Indian consumers for use, such as food, medical care, education, electronics etc.

       Food and beverages, fuel and light, bedding and footwear, housing, and clothing are all sub-groups of the CPI.

 

Types:

CPIs are classified into four types:

       CPI Industrial Workers - Labour Bureau

       CPI Agricultural Labourer - Labour Bureau

       CPI Rural Labourer - Labour Bureau

       CPI (Urban/Rural/Combined) - NSO

 

The first three are compiled by the Labour Bureau, which is part of the Ministry of Labour and Employment. The NSO at the Ministry of Statistics and Programme Implementation compiles the fourth.

 

Base year:

       CPI's base year is 2012.

       The Ministry of Labour and Employment recently released the new series of Consumer Price Index for Industrial Workers (CPI-IW) with 2016 as the base year.

                              

Usage:

       CPI data are used by the Monetary Policy Committee (MPC) to control inflation. The Reserve Bank of India (RBI) adopted the CPI as its key measure of inflation in April 2014.

 

What is the difference between WPI and CPI?

       WPI measures inflation at the producer level, whereas CPI measures price changes at the consumer level.

       WPI does not account for changes in service pricing, but CPI does.

       In the WPI, manufactured goods are given more weightage, whereas food items are given more weightage in the CPI.