The Wholesale Price Index (WPI) is calculated using the following formula: (Current Price / Base Period Price) × 100
This formula expresses the current price of a basket of goods as a percentage of the price of the same basket in a chosen base period. This allows for tracking inflation at the wholesale level.
Explanation of the Formula
- Current Price: The price of a commodity or basket of commodities in the current period.
- Base Period Price: The price of the same commodity or basket of commodities in the base year or period. This period acts as a benchmark for comparison. A base year is chosen for its relative economic stability to provide a reliable point of comparison.
- × 100: Multiplying the result by 100 converts the ratio into an index number, making it easier to interpret percentage changes over time.
Example
Let's say the WPI for a basket of goods in the base year (2011-12) is set to 100. If the price of the same basket of goods in the current year is ₹115, then:
WPI = (115 / 100) × 100 = 115
This indicates a 15% increase in wholesale prices compared to the base year.
Significance of WPI
The WPI is an important indicator of inflation in an economy. It reflects the average movement in wholesale prices of a defined basket of goods. Because it measures price changes before they reach consumers, WPI is often seen as a leading indicator of consumer price inflation.
