Whoever is investing or invested in commodity market must be familiar with the term “Wholesale Price Index (WPI)”. In fact, that is not just a term but an economic indicator to track the price changes in the wholesale market. It measures the commodity prices charged by manufacturers and wholesalers before the retail level. Most importantly, it is used to measure the inflation and status of the average price of goods which traded in the wholesale market. This is why many commodity investors use the economic calendar to check upon the change in the wholesale price of a set of goods by seeing WPI on weekly basis.
Due to its limited focus towards the price of goods traded between corporations, rather than goods bought by consumers, India adopted new CPI to measure inflation. The main purpose of WPI is to check for price movements that tell reflect supply and demand in industry, construction, and manufacturing etc. Seeing that, we can say that WPI is one very important economic indicator which helps in analyzing both macro-economic and micro-economic conditions of a country.
How to Calculate Wholesale Price Index (WPI)?
In calculating WPI value for the economy, a set of commodities and their price changes are used for the calculation.
First thing needs to know that WPI is calculated on a base year. To better understand it clearly, let’s assume the base year is 1990 and the WPI is 100. So, now we are going to calculate the WPI of the year 2000 for a particular commodity, say wheat.
So, let’s assume that the price of 1 kilogram of wheat in 1990 is Rs 5.50 and in 2000 is Rs 6.00.
The WPI of wheat for the year 2000 is,
(Price of wheat in 2000 – Price of wheat in 1990) / Price of wheat in 1990 x 100
i.e. (6-5.5) / 5 x 100 = 10
Since WPI for the base year is assumed as 100, WPI for 2000 will be 100 + 10 = 110.
In this way, the WPI of other commodities can be calculated and then the average of individual WPI figures can be found out to arrive at the Wholesale Price Index.
How to Calculate Inflation Rate?
When you finished calculating the WPI then it is no biggy to calculate the inflation rate. As long as we have the value of two time zones (beginning and end), the inflation rate of the year will be,
For example, WPI on 1st Jan 1990 is 100 and WPI of Jan 1st, 2000 is 110 then the inflation rate for the year 2000 will be,
(110-100)/100 x 100 = 10%.
In a similar way, instead of a year, the wholesale price index can be calculated for a particular week. This is how most investors use to get information on weekly WPI in the economic calendar.