Wholesale Price Index – WPI is a measure of wholesale inflation and it does not effectively cover inflation in its true context.

The Wholesale Price Index (WPI) is now zero. According to data released on December 15th, WPI is just at the same level which it was last in the month of November.

This effectively means that the inflation as measured by WPI has not grown at all. There is an extensive coverage of this in the media. News reports are going gaga over this development. But hang on. It is not time to celebrate. While WPI becoming zero is definitely a welcome change, this does not mean that an ordinary Indian won’t be hit by inflation.

inflation india WPI at Zero, But Inflation can Still Make a Hole in Your Pocket

In fact, reality is that inflation may continue to create hole in your pocket. WPI is a measure of wholesale inflation and it does not effectively cover inflation in its true context. First all WPI is an index of wholesale price and very few of us buy goods at wholesale rates. In fact most of us buy goods and services at retail rates. So while WPI may be down, retail price index may still be up. Secondly WPI does not cover all aspects of expenses that we make. Thirdly, WPI may have reached zero because of a very high base effect. Let us understand all these factors in detail.

WPI has three key constituents-1 ) Primary article which is made of food and non-food articles with an additional space for minerals, 2) Fuel and Power and 3) Manufacturing products. The primary article has a weightage of 20.12% in the total basket.

Look at how food articles have performed. As per the information from Office of Economic Advisor released on 15th December , “The index for Food Articles group declined by 0.4 percent to 257.5 (Provisional) from 258.5 (provisional) for the previous month due to lower price of bajra and tea (4% each), ragi and fruits & vegetables (3% each), maize (2%) and barley, poultry chicken, jowar, rice and gram (1% each). However, the price of moong (6%), fish- inland (5%), egg (4%), coffee and mutton (3%each), fish-marine (2%) and wheat, arhar and condiments & spice (1% each) moved up.” As evident from this data, price of some food items are up and some are down, making overall price effect as nil. You need to check your food basket to see what you consume. It is possible that inflation for some of us is up while for some others it is down.

Now let us look at another interesting aspect. Some of the critical aspects of expenditure are not covered by WPI. Education is a key cost for all households in India. In fact, most of the middle class families in India spend 5%-10% of their income on education but WPI has no place for it.

wpi index inflation WPI at Zero, But Inflation can Still Make a Hole in Your Pocket

In cities, we board auto rickshaws for travelling which now run on CNG, however WPI does not have CNG as a component in its basket. If you end up spending more on these two items, don’t get surprised that why are you paying more when WPI is zero? Drugs and medicines have a very nominal weightage in WPI while cost of consultation and hospitalization is not all covered. So again paying more to the doctor for consultancy is outside the scope which WPI covers. Last but the least WPI has total list of 5482 commodities in its index, half of which you may not ever have heard or consumed.

Here comes the most important factor that one cannot afford to ignore. One should never overlook last year’s base effect. Indian economy was passing through a tough time last year. In fact economy was in crisis and hence we had high inflation. The high inflation has helped WPI achieve this level in the current year because of high base effect. Added to all this is crude price fall. Overall inflation pattern is very skewed and may selectively benefit a group of people only.

By: Vivek Sharma

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