WPI INFLATION ANALYSIS FROM JANUARY 2019 TO FEBRUARY 2021.

Introduction:
Wholesale price index ( WPI) is constructed to measure the average wholesale prices of all
commodities produced and transacted in the economy. Two things must be noted in this
regard. First, WPI measure Whole sale prices of the commodities and not their retail prices
Second, it’s based on all commodities produced or transacted in the economy. Thus, it
includes not only consumers goods but also raw material used in the industrial production
such as coal, cotton, steel And also in capital goods.

Major components of WPI:

 Primary articles is a major component of WPI, further subdivided into Food Articles
and Non-Food Articles.
 Food Articles include items such as Cereals, Paddy, Wheat, Pulses, Vegetables,
Fruits, Milk, Eggs, Meat & Fish, etc.
 Non-Food Articles include Oil Seeds, Minerals and Crude Petroleum
 The next major basket in WPI is Fuel & Power, which tracks price movements in
Petrol, Diesel and LPG
 The biggest basket is Manufactured Goods. It spans across a variety of
manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic,
Cement, Metals, and more.
 Manufactured Goods basket also includes manufactured food products such as
Sugar, Tobacco Products, Vegetable and Animal Oils, and Fats.

How do you calculate Wholesale Price Index?

 The monthly WPI number shows the average price changes of goods usually
expressed in ratios or percentages.
 The index is based on the wholesale prices of a few relevant commodities available.
 The commodities are chosen based on their significance in the region. These represent
different strata of the economy and are expected to provide a comprehensive WPI value.
 The advanced base year 2011-12 adopted recently uses 697 items.

WPI Food Index

WPI has a sub-index called WPI Food Index, which is a combination of the Food Articles
from the Primary Articles basket, and the food products from the Manufactured Products
basket.

WPI inflation in India from January 2019 to February 2021.

First let us look at how the WPI is calculated by Ministry of Commerce and Industry (
Economic Adviser) by a illustrative/ utopian Example:
In the picture our basket only contains soap, onion and shoes.

 JANUARY 2019- MARCH 2019: In this three months the WPI rose from 2.76%, 2.93%
and 3.10% respectively. This increase was contributed by Jowar, Bajra, Maize ,
Tomatoe and Cauliflower though Onion, Tapioca and some others saw decline in
prices.

 APRIL 2019- JUNE 2019: First the WPI increases from March(3.10%) to April(3.24%)
and than decreases in following to months, MAY(2.79%) and JUNE(2.02%). Increase
is due to rise in prices of Cereals and Pulses. Decrease in subsequent months is due
to Cereals and vegetables price went down but Pulses price kept on skyrocketing.

 JULY 2019- SEPTEMBER 2019: WPI kept on decreasing in subsequent months as

1.17%, 1.17% and 0.33% respectively. The trends in these months is hard to
decipher because the results are mixed in Cereals, Pulses and Fruits and Vegetables.
It seems that the increase in prices of some commodities was cancelled out by
others pushing the over prices of WPI index decreasing.

 OCTOBER 2019- DECEMBER 2019: From September 2019 it dipped further to 0% in

October 2019 and than started increasing in November 2019 and December 2019
to 0.58% and 2.76% respectively. Here the prices of Cereals collectively saw a
decreasing trend and Pulses saw increasing trend but margin was less which was
compensated by decreasing trend in price of Fruits and Vegetables.

 JANUARY 2020 – MARCH 2020:Now we need to keep one thing in mind that
CORONAVIRUS cases were started reporting worldwide in January and at end of the
month INDIA reported its first case in KERALA, so the disruption in Supply Chain will
impact both WPI and CPI. In the month of January the rising trend of WPI continued
as 3.52% But further two months saw sudden dip as 2.26% and 0.42% respectively.
 The decreasing trend is clearly visible in Cereals, Pulses and Fruits and Vegetables.
Also Fuel and Manufactured Product saw decline in prices due to Demand Crunch
which was because of uncertainty of future and drastic surge in cases of
coronavirus.

 APRIL 2020- JUNE 2020: In INDIA we saw Countrywide Lockdown being announced
by PM in 23rd March which continued till JUNE and than Unlock was initiated in a
phrasal manner throughout the country. So we saw prices falling to -1.57% in APRIL
and -3.37% in MAY and a slight relief to traders and merchants when prices rose by
positive 1.56%. Trends were beneficial for consumers as most of the commodities
saw decrease in prices but it was a disincentive for suppliers and producers which
were pessimistic about future.

 JULY 2020- SEPTEMBER 2020: These months saw increasing trends in prices from
July=- 0.25, August= -0.41 to September= 1.32%. As Unlock was being successful so
the Agriculture saw bumper crop with Industrial Sector seeing steady growth but
Service Sector in Perils.

 OCTOBER 2020- DECEMBER 2020: Cases in the INDIA saw a steady decline and it
seemed that complete unlocking would be possible in few months which was just a
distant dream as cases started surging due to existence of double mutants virus in
February 2021 and March 2021. The WPI increased from 1.31% in October to 2.29%
in November but declined in December to 1.95%. The majority components of
Cereals, Pulses, Fruits and Vegetables saw decrease in prices in December which
impacted WPI accordingly.

 JANUARY 2021 and FEBRUARY 2021: The WPI prices increased by 0.08% from
December 2020 to January 2021 and by 2.14% from January 2021 to February
2021. This was mainly because every sector saw surge in demand may it be Primary
or Secondary and Supply could match to the expected demand.

Few Points to Ponder Upon:

 Is WPI relevant after URGIT PATEL COMMITTEES
SUGGESTIONS in 2013 to refer Consumer Price
Index( Combined) as the mainstay for all Monetary Policy
Changes?
 Yes in some macroeconomic analysis WPI data is crucial for
both Government as well as Public and Private Enterprises.
 Manufacturing though not a central pillar of Indian Economy
but whenever WPI declines drastically it means that the
 Producers profit is decreasing which forces them to cut labour
force 》 Unemployment Rises 》 Demand by large number of
consumer in organized and unorganized sectors decreases.
 It also impacts FDI and FII as the investor are thirsty for
Flourishing Economies and Vibrant Markets which if not
available than large external credit will not be there for our
GDP to increase.
 So it becomes imperative for economists to concentrate on
both CPI and WPI and restrict them under pre decided
boundaries to maintain the Health of the Economy. For a
layman it is not necessary to know concepts but if any targets
are missed than the disproportionate burden falls on them.