How is Inflation Measured?

How is Inflation Measured?

The inflation rate is calculated as a percentage change in a price index. The price indices widely used for this are the Consumer Price Index (CPI) – adopted by countries such as US, UK, Japan and China, and the Wholesale Price Index (WPI).

 Wholesale Price Index (WPI)

 Wholesale Price Index, or WPI, measures the changes in the prices of goods sold and traded in bulk

by wholesale businesses to other businesses.

Analysts use the numbers to track the supply and demand dynamics in industry, manufacturing and


The numbers are released by the Economic Advisor in the Ministry of Commerce and Industry.
An upward surge in the WPI print indicates infl ationary pressure in the economy and vice versa.
The quantum of rise in the WPI month-after-month is used to measure the level of wholesale inflation in the economy.
New series of WPI
With an aim to align the index with the base year of other important economic indicators such as
GDP and IIP, the base year was updated to 2011-12 from 2004-05 for the new series of Wholesale
Price Index (WPI), effective from April 2017.
Major components of WPI
Primary articles are 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
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.

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