New Delhi, June 2: After extensive preparation, the central government announced the launch of the Producer Price Index (PPI) on Tuesday. This new index is set to replace the Wholesale Price Index (WPI) in the coming years. It is seen as a transformative step in measuring inflation in the country, aiding in more accurate forecasting.
The government will release both the WPI and the new PPI on June 15. Let’s explore the differences between the two.
The WPI measures the average changes in the prices of goods at the initial stages of wholesale trade. In contrast, the PPI tracks the average changes in prices received by domestic producers at the factory or farm level.
While the WPI assesses inflation from the perspective of wholesale traders and the initial point of wholesale sales, the PPI evaluates it from the producer’s viewpoint.
The WPI often counts the same product multiple times as it moves from one wholesale sales stage to another. The PPI, however, uses supply and use tables to track products at single production stages, eliminating multiple calculations entirely.
Transactions in the WPI frequently include distribution costs and indirect taxes at the wholesale level. In contrast, the PPI (especially in terms of basic pricing) excludes taxes and trade/transport margins, allowing for a clearer understanding of the actual amount received by producers.
The PPI provides both input indexes (the amounts paid by manufacturers for materials) and output indexes (the prices they charge for their products). This helps in accurately identifying how price pressures spread throughout the supply chain.
Additionally, the implementation of the PPI aims to align Indian data with global standards.
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