Wholesale Price Index
- Wholesale Price Index measures and tracks the changes in the price of goods in the stages before the retail level. It provides estimates of inflation at the wholesale transaction level for the economy as a whole.
- WPI basket does not cover services.
- It is released by the Office of Economic Adviser, Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry.
- The base year is 2011-2012.
- The index basket consists of commodities under 3 main categories in decreasing order of weightage:
- Manufactured products,
- Primary Articles and
- Fuel and Power.
Why in News?
- Inflation as measured by the Wholesale Price Index quickened to a record high of 10.5% in April, from 7.4% in March and 4.8% recorded in February.
- The increase is mainly due to the base effect from last April which recorded a negative inflation of 1.57%, and a surge in fuel, food and manufactured goods’ prices.
- Economists said the headline WPI inflation surge was sharper than expected and could rise further to 13%-13.5% in May before winding down.
- However, core WPI inflation may continue to rise over the next three months to a peak of about 10.5% from 8.4% in April.
What is Base effect?
- The base effect is the distortion in a monthly inflation figure that results from abnormally high or low levels of inflation in the year-ago month.
- For example, the base effect can lead to an apparent under- or overstatement of figures such as inflation rates or economic growth rates if the point chosen for comparison has an unusually high or low value relative to the current period or the overall data.
- The base effect can lead to distortion in comparisons and deceptive results, or, if well understood and accounted for, can be used to improve our understanding of data and the underlying processes that generate them.
- ture of the underlying trend in prices.
What are headline and core inflation?
- Headline inflation refers to the change in value of all goods in the basket.
- Core inflation measures inflation after excluding the effects of temporary volatility, especially from prices of items such as fuel and food.
- For example, seasonal spikes in food prices may skew the inflation rate, but the effect is only transitory. Core inflation is less volatile than headline inflation.
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