Posted in Finance, Accounting and Economics Terms, Total Reads: 1196
Definition: Wholesale Price Index (WPI)
The price of a representative basket of goods at wholesale stage is referred to as the Wholesale Price Index. It consists of over 2400 commodities. Wholesale goods refer to goods which are sold in bulk and are traded between different corporations and not consumers. The price of goods traded between consumers is called the consumer price index.
Wholesale price index measures the price of individual basket of goods over time i.e. the rise and fall of manufactured goods. It also indicates the week to week fluctuations in the prices of the traded commodities and work as the growth indicators.
Wholesale price index is used in some economies as a measure of inflation particularly in India. WPI is used because data is very easily available and it is a very convenient method to measure inflation. Inflation is the difference in WPI at the beginning and end of a year.
The wholesale price index comprises of the following:
• Domestic whole price Index
• Import Price Index
• Export Price Index
• Overall wholesale Price Index
Wholesale price index has five commodity groups namely agriculture, manufacturing, quarrying, import and export and mining
The uses of WPI are:
• Used by the Government of India and the Reserve Bank of India to frame the monetary and the fiscal policies . Steps are taken if there is a period of inflation
• Used by various Governmental organisations, chambers of commerce ,private organisations etc. for their work
• Used for measuring exchange value or purchasing power of money
• Various organizations like the Planning Commission, Central Statistical Organization and Department of Civil Supplies base their schemes on the price trends revealed by the index number of the wholesale prices
• Also used for forecasting the changes in the upcoming businesses
Advantages of Wholesale Price Index
• Represents the whole sale transactions of all the commodities traded in a country
• Very less time lag since it is available on a weekly basis
• Very useful for comparison
Disadvantages of Wholesale Price Index
• Non-specific in nature
• Does not include services which cater to both businesses and consumers