WPI (Wholesale Price Index) Definition
WPI and Inflation
The Wholesale Price Index, or WPI, is an index which measures inflation by tracking the changes in wholesale prices between businesses and manufacturers.
The Wholesale Price Index stands in contrast with the Consumer Price Index. WPI and CPI differ from each other in how CPI measures the change in prices at the retail level, rather than at the production level.
What is WPI?
WPI is one of several metrics used to identify periods of inflation or deflation.
It can also be used to estimate the purchasing power of a country’s currency.
WPI is calibrated to “100”as a baseline by using a weighted average cost of goods during a WPI base year which varies by country.
So a WPI of 125 indicates a 25% increase in the level of inflation compared to the baseline years.
Calculating the current rate of inflation will compute the % change in the Wholesale Price Index between two time periods, such as year over year.
For example, the Office of the Economic Adviser in India published a WPI of 114.1 in 2017 and 118.9 in 2018.
(118.9-114.1) divided by 114.1 equals a 4.2% inflation year over year based on the WPI.
How is WPI Used in the Modern Day?
Today, many countries use a WPI as a measurement of their economies’ health.
However, the U.S. stopped using the WPI in 1978 and instead uses the Producer Price Index, or PPI, which is a more detailed version of the Wholesale Price Index.