The document discusses the Wholesale Price Index (WPI) and inflation in India. It provides background on WPI, including what it measures and its history of use. It then explains inflation and the different types. WPI is used as the main measure of inflation in India because it tracks prices of 435 commodities at the wholesale level on a weekly basis with a two week lag. However, there are criticisms that WPI is an outdated measure that does not adequately capture price changes faced by consumers or the service sector. The Consumer Price Index is seen as a preferable alternative measure.

2. Wholesale price index and inflation

3. 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.

4. 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

5. 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%

6. 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

7. Inflation

8. 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:

9. 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

10. Inflation & WPI

11. Inflation & WPI Inflation (%) 14 12 10 8 6 4 2 0 7/5/2008 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

12. Inflation & WPI All Commodity 250 240 230 220 210 19/04/2008 15/03/2008 24/05/2008 28/06/2008 2/08/2008 5/1/2008 20/12/2008 6/09/2008 11/10/2008 15/11/2008 24/01/2009 28/02/2009 04/04/2009 9/05/2009 9/2/2008

13. Inflation & WPI Primary Articles 260 255 250 245 240 235 230 225 220 19/04/2008 15/03/2008 24/05/2008 28/06/2008 2/08/2008 5/1/2008 20/12/2008 6/09/2008 11/10/2008 15/11/2008 24/01/2009 28/02/2009 04/04/2009 9/05/2009 9/2/2008

14. Inflation & WPI Fuel, Power, etc 385 375 365 355 345 335 325 315 19/04/2008 15/03/2008 24/05/2008 28/06/2008 2/08/2008 5/1/2008 20/12/2008 6/09/2008 11/10/2008 15/11/2008 24/01/2009 28/02/2009 04/04/2009 9/05/2009 9/2/2008

15. Items Of WPI

16. 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.

17. Items Included in WPI

18. 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.

19. Problems & Suggestions Measuring B.P. using thermometer. Erroneous method of calculating inflation. Very old base Not for mango man (aamaadmi) Practically useless / sooo outdated Have Saridon , Campacola,Pagers,Dalda Coco cola, Crocin, Refined oil, Mobiles are missing PPI also includes taxes and transport charges Service sector no share

20. 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

21. Consumer Price Index Views of N.S.C. Views of Economists Views of Mr. Finance minister Ignorance of people

22. Urgent Action IS Needed

24. Pradeep Vikas Pradeep Manish Manish