The Wholesale Price Index (WPI) measures inflation at the wholesale level by tracking the prices of goods sold between businesses before reaching consumers. WPI measures price changes of a basket of goods over time and indicates weekly fluctuations in commodity prices. It comprises domestic, import, export, and overall wholesale price indexes across five commodity groups. WPI differs from the Consumer Price Index which tracks price changes of goods and services purchased by consumers.

1. Whole Sale Price Index (WPI)
Wholesale goods refer to goods which are sold in bulk and are traded between different
corporations and not consumers. The price index of a representative basket of goods at
wholesale stage is referred to as the Wholesale Price Index. The price index 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.
 A wholesale price index (WPI) measures and tracks the changes in the price of goods before
they reach consumers: goods that are sold in bulk and traded between entities or businesses
(rather than consumers).
 Wholesale price indexes (WPIs) are one indicator/ measure of inflation of a country's level
of inflation. 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 wholesale 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
Wholesale Price Index (WPI) measures the changes in the prices of goods sold and traded in
bulk by wholesale businesses to other businesses. WPI is unlike the Consumer Price Index
(CPI), which tracks the prices of goods and services purchased by consumers, WPI tracks
prices at the factory gate before the retail level.
Basket of wholesale goods
The wholesale price index (WPI) is based on the wholesale price of a few relevant commodities
available on the market. The commodities chosen for the calculation are based on their
importance in the region and the point of time the WPI is employed. For example, in India

2. about 435 items were used for calculating the WPI in base year 1993-94 while the advanced
base year 2004-05 and which has now been planned to change to 2010-2011; uses 676 items.
A WPI typically takes into account commodity prices, but the products included vary from
country to country. They are also subject to change, as needed, to better reflect the current
economy. Some small countries only compare the prices of 100 to 200 products, while larger
countries tend to include thousands of products in their WPIs.
The Consumer Price Index (CPI) measures changes in the price level of a 'market basket' of
consumer goods and services purchased by households. The CPI is a statistical estimate
constructed using the prices of a sample of representative items whose prices are collected
periodically.
The uses of WPI are:
1. Used by the Government of Uganda and the Central Bank of Uganda to frame the monetary
and the fiscal policies. Steps are taken if there is a period of inflation
2. Used by various Governmental organisations, chambers of commerce, private
organisations etc. for their work
3. Used for measuring exchange value or purchasing power of money
4. Various organizations like the Planning Commission, Central Statistical Organization and
NPA base their schemes on the price trends revealed by the index number of the wholesale
prices
5. Also used for forecasting the changes in the upcoming businesses
Advantages of Wholesale Price Index
1. Represents the wholesale transactions of all the commodities traded in a country
2. Has a small time lag since it is available on a weekly basis
3. Very useful for comparison
Disadvantages of Wholesale Price Index
1. Non-specific in nature
2. Does not include services which cater for both businesses and consumers

3. Need for WPI
The Wholesale Price Index (WPI) number is a measure of average wholesale price movement
for the economy.
1. WPI is an important measure to monitor the dynamic movement of prices at the wholesale
level. In a dynamic world, prices keep on changing.
2. WPI is used as a deflator of various nominal macroeconomic variables including Gross
Domestic Product (GDP).
3. The WPI based inflation estimates also serve as an important determinant, in formulation
of trade, fiscal and other economic policies by the Government.
4. WPI is also used for the purpose of escalation clauses in the supply of raw materials,
machinery and construction work.
5. Business firms in search of effective methods for coping with changes in prices often
employ price adjustment (escalation) clauses in long-term sales and purchase contracts.
6. WPI is widely recognized among business people, economists, statisticians, and
accountants as a useful objective indexing tool in price adjustment clauses.
Method of Calculation of WPI
The Compilation of new WPI series broadly consists of two stages
(i) First, the item level indices (i.e., elementary price index) are calculated using “Jevons Index
formula”, which uses the Geometric Mean (GM) of Price Relatives (i.e., the price change).
Price relatives are calculated as the percentage ratios, i.e., by dividing the current price by the
base period price and multiplying the quotient by 100. These elementary indices are the lowest
level of aggregation where prices are combined into price indices.
(ii) In the second stage, these elementary price indices are aggregated using weighted
arithmetic mean to obtain higher level (at sub-group/ group/ major group/ All Commodities
level) indices using Laspyere’s index formula, which has a fixed base-year weighting diagram
operative through the entire life span of the series. The formula used is:
𝐼 =
∑ ( 𝑊𝑖 ∗ 𝐼𝑖 )
∑𝑊𝑖
I = Index Number of wholesale prices of a sub-group/group/major group/All
commodities

4. Wi = weight assigned to the i -th item/sub-group/group/major group
Ii = Index of the i- th item/sub-group/group/major group
The items in WPI are classified into three main groups: Primary Articles, Fuel & Power and,
Manufactured Products. It does not take into account the services provided. Further, to compile
WPI, the prices used are gathered as under:
 For manufactured goods
 For mineral Products
 For agricultural Products
Selection of Base Year
The well-known criteria for the selection of a new base year are:
(i) A normal year, i.e., a year in which there are no abnormalities in the level of
production, trade and in the price level and price variations,
(ii) A year for which reliable production, price and other required data are available
(iii) A year as recent as possible and comparable with other data series.
Need for a periodic revision in the base year of WPI
Over time economies undergo structural changes. This is also true in the contemporary
Indian context. Under the current liberalized environment, changes in the economy are
taking place at a fast pace. Product and their specifications, both in terms of content, quality
and packaging, are changing even faster. It has, therefore, become increasingly difficult to
obtain the price information of selected products for a fixed number of quotations over a
longer period of time. Also, a number of products, which were very important in terms of
the market share during the base year of the ongoing series, loose relative importance or
completely phase out and get replaced by new substitutes in the market.

5. Key Differences BetweenConsumer Price Index (CPI) and Wholesale Price Index (WPI)
The differences between consumer price index and wholesale price index, are discussed in the
points below:
1. Wholesale Price Index (WPI) estimates inflation by ascertaining the price paid on the
purchase of goods by the wholesalers from manufacturers and comparing it with the
base year prices. As against Consumer Price Index (CPI) is used to measure the changes
in prices, by making a comparison, through time, the overall price of the fixed basket
of commodities.
2. In India, Wholesale Price Index is published by Office of Economic Advisor which
comes under Ministry of Commerce and Industry. On the contrary, Consumer Price
Index is declared by Central Statistics Office, which works under Ministry of Statistics
and Programme Implementation.
3. In wholesale Price Index, the inflation is measured by tracking the price paid at the first
stage of the transaction. Conversely, the price paid at the last stage of the transaction is
used to measure inflation in consumer price index.
4. WPI basket covers the only price of goods, whereas services like housing education,
recreation and so forth are also covered in CPI basket along with the goods.
5. WPI is concerned with the prices paid on the trade of goods between two business
houses for the purpose of resale. In contrast, CPI stresses on the prices of goods bought
by the consumers for the purpose of consumption.
Some Reference:
https://www.mbaskool.com/business-concepts/finance-accounting-economics-terms/12355-
wholesale-price-index-wpi.html
https://www.britannica.com/topic/wholesale-price-index
The Wholesale Price Index vs. the Producer Price Index
Initially, countries first began measuring their economy (and its level of inflation) with a
wholesale price index. Later, the name of the measured index changed to the producer price
index (PPI). The PPI relies on the same calculation formula as the WPI, but it includes the

6. prices of services, as well as physical goods, and eliminates the component of indirect taxes
from prices.
The PPI consists of three indexes, covering different stages of production: industry,
commodity, and commodity-based final demand-intermediate demand. The use of all three
helps minimizes the bias toward double-counting that is inherent in the WPI, which doesn't
always segregate intermediate and final products.
Data Released by Statistical Offices e.g., UBOS in Uganda
UBOS produces several product prices indexes each month. An analyst can review information
broken into three large categories and then further drill down to specific products or services.
Industry Level Classification
One of the classifications for UBOS data is the industry-based category. The industry-based
group measures the cost of production at the industry level. It tracks the changes in prices
received for an industry's output outside the sector itself by calculating industry net output.
BLS product price index includes approximately 500 industry-specific listings. Publications
include over 4,000 product-related indexes. Further, the agency offers around 500 indexes for
grouped industry information.
Commodity Classification
The second category is the commodity classification. This publication ignores the industry of
production and combines goods and services by similarity and product make-up. More than
3,800 indexes cover produced goods and about 900 cover services. The indexes are arranged
by end-use, product, and service.1
Commodity-Based Final Demand-Intermediate Demand (FD-ID)
The FD-ID system regroups commodity indexes for goods, services, and construction into sub-
product classes, which take into account the specific buyer of the products. The end-user or
buyer is termed as either the final demand (FD) or the intermediate demand (ID) user. This
classification considers the physical assembly and processing required for these goods. Here,
BLS publishes over 600 FD-ID targeted indexes. Some indexes are adjusted for seasonality.

7. Each specific measurement period, product group, or individual product type, begins with a
base period number of 100. As production increases or decreases, the movements can then be
compared against the base number.3 As an example, say the production of balloons has a PPI
of 115 for the month of July. The 115 figure indicates that it cost the balloon manufacturing
industry 15% more to produce balloons in July than it did in June.
Example of Producer Price Index (PPI)
Businesses often enter into long-term contracts with suppliers. Because prices fluctuate over
time, such long-term deals would be difficult with only a single, fixed price for the goods or
supplies. Instead, the purchasing business and the supplier typically include a clause in the
contract that adjusts the cost by external indicators, such as the PPI.
For example, Company A might get a key component for its widgets from Industry Z. At the
outset of the deal, the cost of that component is $1, but it includes a provision in the contract
that the price will be adjusted quarterly, according to the PPI. So, three months after the contract
is signed, the cost of the component could be $1.02 each if the PPI increased by 2% during the
quarter, or $0.99 each if the PPI decreased by 1% during the quarter. Therefore, with the
contract PPI indexed, the price of widgets will go up or down depending on whether or not the
PPI went up or down and how much it changed.
The Index Number of Parity Between Prices Received and Prices Paid by Farmers
The economic conditions of the farmer are influenced by the trends in prices received and paid
by farmers. Since these prices have opposite effect on his economic condition, the parity
between the two determines whether the prices on the whole are moving in favour of the farmer
or not and if so, to what extent.
Prices Paid Index
The Prices Paid Index is a monthly series that measures the change of average prices in
commodities purchased by producers for agricultural production and family living. “It
measures changes in price only. The index does not measure changes in production expenses
or living expenditure, which are a product of prices and quantities consumed.” (USDA, 1990)
The primary purpose of the prices paid index is to meet the need for a better measure of price
changes in items purchased by producers for use in agricultural production and family living.
With passage of the Agricultural Adjustment Act of 1933, the index acquired legal status. That
act required that the prices paid index be used for the computation of parity prices.

8. The prices paid index is subdivided into two parts; the index number of domestic expenditure
and the index number of costs of cultivation.
(i) Index number of domestic Expenditure
This is the Consumer Price Index (CPI) of farmers on various commodities. The
weights are derived from the family budget inquiries of farmers. The prices used are
the retail prices from the fairly large number of markets or shops from which farmers
make their purchases for daily needs e.g. commodities and services, interest, taxes, and
wages. Only cash expenditure of farmers is considered for determining the weights.
(ii) Index Number of Cultivation Cost
The expenditure actually incurred by the farmer is taken into account; these include:
remuneration paid to hired labour, cost of seeds, chemicals, fertilizers, agricultural
implements, rent of land used on lease, land taxes, feeds, Fuels, Supplies & Repairs,
Autos & Trucks, Farm Machinery, Building Materials, etc. The items for the cost of
cultivation are selected to cover the bulk of the farmers cash expenditure on cultivation.
The index is worked out as a weighted arithmetic average of prices and wage relatives.
These two index numbers are combined into a composite index of prices paid by the farmer.
For this purpose, weights proportional to the cash expenditure are needed. A weighted
arithmetic mean of the two index numbers is used to obtain the index number of the prices paid.
Prices Received
These are the prices received by producers for the commodities they sell in their local market
or at the point where they deliver their product. The current series of Prices Received by
farmers include monthly prices for most major agricultural commodities.
Prices Received Index
One of the major uses of the price received estimates is to calculate price index. The index of
prices received by producers is a measure of changes in the average price level of the
agricultural commodities that producers sell. It measures this level by averaging into one figure
or index number the changes in prices of major agricultural commodities, so that comparisons
in the price level of these commodities can be made from month to month and year to year. It

9. is a measure of the U.S. average price level of this combined group of commodities relative to
the level in a base period, rather than a measure of the level of the price of any one commodity
or of any restricted group of agricultural commodities sold by any producer (USDA, 1952).
The index of Prices Received by farmers provides an estimate of the price change between two
periods.
Calculation of Index Number of Prices Received
Index Number of Prices Received =
∑ 𝑊𝑖 (
𝑃1𝑖
𝑃0𝑖
)
∑ 𝑊𝑖
× 100
Where: 𝑊𝑖 = Weight proportional to i-th commodity in the base period
𝑃1𝑖 = Price of the i-th commodity in the current period
𝑃0𝑖 = Price of the i-th commodity in base period
Index Number of Parity
The parity price ratio (Parity Price index)-i.e. the ratio between the indexes of prices received
and paid by farmers-is widely used as a measure of farmers' economic status of agriculture.
The parity price ratio reflects changes in the level of the prices received relative to prices paid
by farmers, but it does not reflect changes in the quantities produced or purchased. In other
words, the parity ratio is not responsive to shifts in the rate at which inputs are transformed into
outputs.
The parity price ratio compares the purchasing power of farm products per unit of product with
their purchasing power per unit in an earlier base period. What farmers are really interested in,
however, is parity of returns to their labour and management with returns in other occupations
now.
Calculation of Parity Index Number
This involves the construction of Index number of prices received by farmers from their
agricultural products and index number of prices paid by farmers for their agricultural inputs.
Thus,

10. 𝐼𝑛𝑑𝑒𝑥 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑃𝑎𝑟𝑖𝑡𝑦 =
𝐼𝑛𝑑𝑒𝑥 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑟𝑖𝑐𝑒𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑒𝑑
𝐼𝑛𝑑𝑒𝑥 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓𝑃𝑟𝑖𝑐𝑒𝑠 𝑃𝑎𝑖𝑑
× 100
Interpretation of the Parity Index.
1. The parity index of 100 indicate that the relationship between prices received and prices
paid by the farmers is the same as in the base year.
2. The low level of the index reveals that farmers have received lower prices for their
agricultural commodities while they had to pay higher prices for the requirements than
they paid in the base year.
3. The higher level of the index number on the other hand will show the benefit accruing
to the farmer due to higher relative change in prices of agricultural commodities
obtained from him as compared to the change in prices of agricultural commodities
purchased by him.
It should however be noted that a lower index may not always mean that the farmer has
suffered. In the year of bumper harvest, prices of agricultural commodities might be lower but
the total income may go higher. Similarly, in the year of draught, although the index may go
higher, still the farmer may suffer heavily because his income may decline due to low yields.
Import and Export Price Indexes (MXPIs)
The import and export price indexes (MXPIs) measure changes in the prices of goods or
services purchased from abroad by local country residents (imports) and sold to foreign buyers
by local country residents (exports).
The indexes are updated once a month by the Statistical office or central bank. Data to compute
the MXPIs is collected from exporter declarations and entry documents of imported goods.
MXPs are published for many different types of commodities, goods and service industries,
location of origin, and location of destination.
The data is used to deflate government trade statistics, predict future inflation and price
changes, set fiscal and monetary policy, measure exchange rates, negotiate trade contracts, and
identify specific industry and global price trends.
Investors pay careful attention to price trends because inflation is generally bad for both bond
and equity markets.

11. Uses of Import and Export Price Indexes (MXPIs)
The MXPIs serve many purposes. Among other things, they can be used to:
1. Deflate government trade statistics: Because trade statistics are reported and aggregated
in nominal dollar terms, analysts can use MXPs to convert them into real values.
2. Predict future prices and domestic inflation: The prices of some consumer goods may in
part depend on the cost of imported goods or raw materials used in their domestic
production.
3. Help the Federal Reserve Board (FRB) decide which fiscal and monetary policies to
implement: Tracking trade flows and the expected future course of domestic inflation are
both important considerations in setting policy.
4. Measure exchange rates and negotiate trade contracts: MXPs can be used to estimate
or set exchange rates and currency exchange price escalation factors for trade agreements
and contracts.
5. Identify specific industry and global price trends: MXPs for different industries, goods,
or countries of origin can be used to help identify trends across these different dimensions.