Data upgrade: New WPI, PPIs on June 15, Pg15

Key Highlights:

• The Commerce Ministry will release a new Wholesale Price Index (WPI) series with 2022-23 as the base year on June 15.
• India plans to transition from the WPI to the Producer Price Index (PPI) as the primary measure of non-retail inflation over the next five years, with the WPI likely to be discontinued by 2031.
• The new WPI series will include data for May and a back-series from April 2023 onwards.
• Alongside the new WPI, the Commerce Ministry will also introduce three types of Producer Price Indices on June 15: Output PPI, Input PPI (experimental), and Services PPI.

Detailed Insights:

• The Reserve Bank of India (RBI) primarily uses Consumer Price Index (CPI) to determine interest rates and manage monetary policy.
• WPI is currently vital for price escalation clauses in long-term contracts for raw materials, machinery, and construction work.
• The Ministry of Finance's Department of Expenditure will issue a circular advising users to adopt PPI for new long-term contracts extending beyond 2031.
• This statistical overhaul is part of a broader government effort, with the Ministry of Statistics and Programme Implementation (MoSPI) having already updated base years for CPI, GDP, and Index of Industrial Production (IIP).
• The transition to PPI aims to align India's statistical framework with international best practices and recommendations from organizations like the International Monetary Fund (IMF).
• The Output PPI measures prices received by producers, excluding net taxes and trade margins, initially covering 125 items.
• The Input PPI measures prices paid by producers for inputs, including trade and transport margins, and will be released on an experimental basis.
• A Services Producer Price Index will be released quarterly for seven services, including banking, insurance, railways, and telecom, with the first data for January-March 2026.
• PPIs are considered more consistent with the national accounts framework and are expected to eventually replace the combination of WPI and CPI for computing real GDP.
• The revised WPI series expands its commodity basket from 697 to 957 items, including new energy sources like solar and wind power.

Key Concepts Involved:

• Wholesale Price Index (WPI): An index measuring the average change in prices of goods at the wholesale level, reflecting producer-level inflation.
• Producer Price Index (PPI): An index measuring the average change in selling prices received by domestic producers for their output, covering both goods and services.
• Consumer Price Index (CPI): An index measuring the average change in prices paid by urban and rural consumers for a basket of consumer goods and services, indicating retail inflation.
• Base Year: A reference year used as a starting point for comparison in economic indices, typically assigned a value of 100, to measure changes over time.