Wholesale prices has fallen for the ninth consecutive month in July on the back of a decline in food and fuel prices, raising prospects of a cut in interest rates to give a push to growth.
This was the lowest level of the inflation based on wholesale price index (WPI) since 1976
Moreover, according to economists, it is the longest stretch of negative wholesale prices in the country since 1975.
WPI inflation was in negative zone for 12 months between July 1975 and June 1976.
Data released by the commerce ministry showed the wholesale inflation fell 4.05% in July compared to a decline of 2.40% for the previous month and 5.41% during the corresponding month of the previous year.
The sharp dip in WPI comes close on the heels of the significant moderation in retail inflation in July and together the two data sets have fuelled expectations of a cut in interest rates.
What is WPI
- The Wholesale Price Index or WPI is “the price of a representative basket of wholesale goods”.
- Some countries use the changes in this index to measure inflation in their economies, in particular India – The Indian WPI figure was released weekly on every Thursday, but since 2009 it has been made monthly
- It also influences stock and fixed price markets.
- The Wholesale Price Index focuses on the price of goods traded between corporations, rather than goods bought by consumers, which is measured by the Consumer Price Index.
- The purpose of the WPI is to monitor price movements that reflect supply and demand in industry, manufacturing and construction.
- This helps in analyzing both macroeconomic and microeconomic conditions.
How WPI is calculated?
- The wholesale price index (WPI) is based on the wholesale price of a few relevant commodities of over 240 commodities available.
- 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 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 changed to 2011-2012; uses 676 items.
- The indicator tracks the price movement of each commodity individually.
- Based on this individual movement, the WPI is determined through the averaging principle.
