New Base Year For WPI Inflation: Inter-ministerial consultations are going on changing the base year for the Wholesale Price Index (WPI) to 2017-18. Currently, the base year is 2011-12. The draft technical report of a working panel has already been placed for this. Here’s all you need to know about WPI inflation and its base year:
What Is WPI Inflation?
The Wholesale Price Index, as the name suggests, is an index that indicates inflation at the wholesale market level, whereas the Consumer Price Index (CPI) suggests the rate of price increase at the consumer or retail level. For instance, Azadpur Mandi and Okhla Mandi in Delhi are whole markets for vegetables, and any fluctuation in prices here would be captured in the WPI inflation. Whereas, any change in prices at local shops or retail shops, which directly affects consumers, will be taken into account for CPI calculation.
The index has a total of 697 items, including primary articles (117), fuel and power (16), and manufactured products (564). In June 2021, the Department for Promotion of Industry and Internal Trade (DPIIT) released a draft technical report of a working group, which apart from suggesting revising the base year of WPI also recommended the addition of about 480 new items in the new series.
In the new series, a total of 1,176 items in three categories have been proposed — primary articles (131), fuel and power (19), and manufactured products (1,026).
What is A Base Year?
The inflation rate is calculated based on indices — WPI and CPI. The indices are set to 100 in a particular year and the year is the base year. For instance, a basket of goods was Rs 2 lakh in the base year and the index is set as 100 in that year. Now, if the price of the basket increases to Rs 2.2 lakh in the next year, the index will change to 110 that year. The change in the index value from 100 to 110 indicates 10 per cent inflation.
Why Is The Base Year Being Changed?
The new base year will help in presenting a more realisting picture of the price situation in the country. The WPI, which was introduced in 1942 with the base year 1939, has witnessed seven revisions in base years so far — 1952-53, 1961-62, 1970-71, 1981-82, 1993-94, 2004-05 and 2011-12. The current base year for the WPI — 2011-12 — was launched in May 2017.
Does WPI Affect Interest Rates In the Country?
The RBI’s Monetary Policy Committee takes CPI inflation as its reference for deciding on the interest rates in the country. However, a high WPI inflation rate impacts retail prices, which in turn affects interest rates in the country. So, WPI inflation does not impact the monetary policy in India directly but indirectly it affects. Earlier, WPI used to be taken as the reference for monetary policy decisions.
What Is the Current WPI Inflation Rate?
Remaining in double-digits for the 16th consecutive month beginning April last year, the wholesale price-based inflation in July stood at 13.93 per cent. However, it was the lowest in five months due to easing prices of food articles and manufactured products. The WPI-based inflation had stood at a record high of 15.88 per cent in May, 15.18 per cent in June. It was 13.43 per cent in February.
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