What is Wholesale Price Index? How It's Calculated & Its Impact on Indian Economy

WPI stands for the Wholesale Price Index, which represents the bulk quantity of a commodity before it reaches the retail market. Investors use WPI to make better decisions before investing. They rely on WPI to predict the price of a commodity before it reaches the retail market.

Let us understand the Wholesale Price Index, its importance, how it is calculated, and more in detail.

How Does the Wholesale Price Index (WPI) Work? 

Changes in the prices of goods at the wholesale level are measured by the Wholesale Price Index (WPI). This helps in tracking economic trends and inflation. WPI is calculated with a base value set at 100 for a specific period. The new index value is determined by any price fluctuations in subsequent months.

Commodity prices are primarily included in WPI, and the number of products considered varies by country. For example, larger nations include thousands of products to ensure an accurate reflection of market trends, while smaller nations may include only a few hundred products.

For instance, if the price level increased by 8% over the course of one year, the WPI for August of the following year would be 108.

Table of Content

1. How Does the Wholesale Price Index (WPI) Work? 
2. WPI Calculation
3. Formula for WPI Calculation
4. Example for WPI Calculation
5. Importance of WPI
6. Differentiate Between the Wholesale Price Index and the Consumer Price Index
7. Wholesale Price Index (WPI) in India

WPI Calculation

Primary articles, fuel and power, and manufactured goods are the three main components used to calculate the Wholesale Price Index. These three components evaluate the initial cost of manufacturing or producing any commodity.

Formula for WPI Calculation

(Current Price/Base Period Price)×100(\text{Current Price}/\text{Base Period Price}) \times 100(Current Price/Base Period Price)×100

Example for WPI Calculation

If the commodity price of a good was ₹8,000 in 2013 and it reached ₹10,000 in 2025, using the WPI formula:

(10,000/8,000)×100=125(10,000/8,000) \times 100 = 125(10,000/8,000)×100=125

So, the WPI is 125.

Let’s simplify this further: Suppose the price of a commodity was ₹4,000 in 2013 and it reached ₹5,000 in 2023.

Using the WPI formula, we divide:

(5,000/4,000)=1.25(5,000/4,000) = 1.25(5,000/4,000)=1.25

Now, multiply 1.25 by 100, which gives 125. Since WPI is measured as a percentage, subtract 100 (the base year value) from 125 to get 25 as the final value.

Importance of WPI

Let’s understand the importance of WPI in detail:

• WPI provides an early indication to businesses and trade sectors, helping them formulate plans by managing inventory, predicting costs, and planning production.
• A higher WPI affects the overall cost in the consumer market, influencing demand and supply, which in turn impacts trade and investors’ decisions.
• The Wholesale Price Index is used by the government to decide its monetary policies. If WPI shows an upward price change for certain goods, it will impact the retail prices. The government then forms policies to manage this inflation by offering investors promising returns, among other measures.

Differentiate Between the Wholesale Price Index and the Consumer Price Index

Wholesale Price Index (WPI) in India

The Wholesale Price Index (WPI) is important for the government as it is used for measuring inflation and adjusting prices. WPI reflects the average change of bulk commodities before they reach the consumer market. The government of India uses WPI to formulate its monetary policies to control extreme price increases in the consumer market.

In India, WPI is used as a metric for every sector, including the primary, secondary, and tertiary sectors. The agricultural, automobile, health and medicine, food processing, chemical substance, textile, and construction sectors are just a few examples where WPI plays a crucial role.

Conclusion

WPI is used by traders, investors, and the government to make informed decisions. It is used for evaluating price inflation at the initial level to determine the price of a commodity when it reaches the retail market. Together, WPI and CPI provide a comprehensive picture of price movements in the market.