WPI Mirage

I’m not taken aback when my mum cribs about the rising prices of commodities, while on the other hand the present Ministry takes great price in keeping the inflation figures low, at a time when India needs it most. As per the week ended April 25^th, the WPI stood at a meager 1.27 per cent, the lowest in three decades.  Sadly, this figure is not representative of the true expenditure of the common man in India.

While most developed and even developing countries like USA, UK, Japan, France and China use the CPI (Consumer Price Index), India continues to use the WPI (Wholesale Price Index) for calculation of inflation.

The WPI comprises a basket of 435 commodities and 100 of these commodities are not consumed by at least the Urban India. Being a wholesale index, the price change fails to take into consideration the retail margins. The basket of commodities comprising the WPI was formed by the Government back in 1993-94, while the developed countries update the same every 4-5 years to ensure that the figures are a true barometer. Conversely, the CPI sees to be a well defined and systematic series, which represents only 1 but different class of people in society and thus acting as a good indicator. The series can be broadly classified into:

·         Urban consumers

·         Urban wage earners and clerical workers

The calculation of the CPI is not just a lot more laborious than the WPI, but also demands an organized and systematic source of information. It’s commendable to see that the economic assistants at the BLS (Bureau of Labor Statistics) work rigorously to get updates from various retail stores, rental units and Doctor’s offices to get updates on a whopping 80,000 items a month).  

Inflation is one of the most important indicators to any economy. Its importance cannot be restricted to keeping the households abreast about the changes in the value of goods and services, but is imperative for business and investment decisions as well. It’s important that the Government works towards ensuring that the figures published by them are a lot more reliable.