WPI, PPI, and headline vs core inflation

Detail

1. Wholesale Price Index (WPI): what it measures

• The Wholesale Price Index (WPI) tracks the prices at which goods are traded in bulk. "In bulk" means large lots sold between businesses, not single items sold in a shop.
• These goods include raw materials (such as cotton and iron ore) and semi-finished goods (such as yarn and steel billets).

• It measures the general price level. It has no reference consumer group. CPI is different: it is built for a particular group, such as industrial workers or all households.

• It covers goods only. Services are excluded, for example barber charges, repairs, rent, school fees and hospital charges.

• Compiler: the Office of the Economic Adviser (OEA) in the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.
• WPI inflation is now published monthly. The old weekly WPI series has ended.

2. Base year: from 2011-12 to 2022-23

• NCERT series: base 2011-12 = 100. The WPI stood at 112.8 in May 2017.

• This means wholesale prices rose 12.8% between 2011-12 and May 2017.

• New series: the base-year change from 2011-12 to 2022-23, together with new Producer Price Indices (PPIs), was approved on 25 May 2026. OEA-DPIIT released the new series on 15 June 2026, and it replaces the 2011-12 series [2][3].

• Main changes in the 2022-23 series [3]:
• The basket grew from 697 to 957 items.
• Weights are now based on Gross Value of Output (GVO), meaning the total value a sector produces. The 2011-12 series used Net Traded Value. GVO weights show more accurately how important each good is in the economy.
• Crude petroleum and natural gas moved from 'Primary Articles' to 'Fuel and Power'.

• Solar and wind power were added under the 'Electricity' group, and nuclear electricity was brought into the basket.

• WPI will be phased out: many contracts use WPI in price escalation clauses, which raise the contract price automatically when WPI rises. So WPI will be published alongside the PPI for five years from its release and then discontinued. This gives users time to move to the PPI [2].

3. How to read a WPI number

• An index number shows the price level compared with the base year, which is set at 100.
• Formula: % change since base = (Index value − 100) ÷ 100 × 100

• Example (NCERT): WPI (2004-05 base) = 253 in October 2014. So (253 − 100)/100 × 100 = 153%. The general price level rose 153% over that period.

• WPI inflation is the year-on-year change. It compares this month's index with the same month last year:

• WPI inflation (%) = (WPIₜ − WPIₜ₋₁₂) ÷ WPIₜ₋₁₂ × 100, where t is the current month.
• Example: WPI = 150 in June 2025 and 156 in June 2026. Inflation = (156 − 150)/150 × 100 = 4%.
• NCERT's older weekly formula used the same logic with weeks: (Xₜ − Xₜ₋₅₂)/Xₜ₋₅₂ × 100. It is no longer in use because the weekly series has ended.

4. WPI major groups and the WPI Food Index

• 2011-12 series weights (NCERT):

Group	Weight
Primary articles (food articles, non-food articles, minerals; crude and gas in the 2011-12 series)	22.62
Fuel and power	13.15
Manufactured products	64.23
All commodities	100.00

• Manufactured products carry almost two-thirds of the weight. So WPI moves mainly with factory goods such as metals, chemicals and textiles.
• Worked example (approximate, using group weights): suppose that in one year primary articles rise 5%, fuel and power rise 10%, and manufactured products rise 2%.
• WPI inflation ≈ (22.62×5 + 13.15×10 + 64.23×2)/100 = (113.1 + 131.5 + 128.5)/100 ≈ 3.7%

• Fuel has only about 13% of the weight, yet here it produces more than one-third of the inflation. This shows why oil shocks move WPI so strongly.

• WPI Food Index = food articles (from primary articles) + food products (from manufactured products). Its weight is 24.23, about a quarter of WPI (2011-12 series).

• Latest group-wise data (new series, May 2026): year-on-year inflation was 4.99% for primary articles, 30.33% for fuel and power, and 7.48% for manufactured products [3]. The much higher fuel figure shows how sensitive WPI is to energy prices.
• The group weights for the 2022-23 series were not retrieved here. Check the OEA-DPIIT release. Keep the NCERT 2011-12 weights for concept questions.

5. Producer Price Index (PPI)

• The Producer Price Index (PPI) measures the average prices received by domestic producers for what they produce. It excludes taxes, trade margins and transport costs.

• So it records the price at the factory gate, before the government's tax and the trader's cut are added.

• The USA and many other countries use a PPI instead of a WPI (NCERT Class 12, National Income Accounting).

• Why PPI is better than WPI:
• A wholesale price can include taxes and margins, so the same cost may be counted more than once as a good passes through the supply chain.
• A PPI can also cover services, which WPI leaves out.

• PPI follows international statistical practice.

• India's PPI family (base 2022-23), released by OEA-DPIIT [3]:

• Output PPI (OPPI): prices producers receive for their output.
• Trial Input PPI (IPPI): prices producers pay for their inputs. It is still a trial series.

• Services PPI for seven services: banking, securities transactions, insurance, management of pension funds, railways, air passenger transport and telecom.

• Reading OPPI and IPPI together: if input prices (IPPI) rise faster than output prices (OPPI), producers' profit margins are being squeezed. Producers may later pass these costs on to buyers as higher prices.

6. Headline inflation

• Headline inflation is inflation on the full index, including the volatile food and fuel items. "Volatile" means their prices jump up and down quickly.
• In India today, headline inflation means CPI-C inflation (the Consumer Price Index – Combined, covering rural and urban households, compiled by NSO-MoSPI).
• NCERT is outdated here: it calls "all-commodities WPI inflation" the headline rate.
• How the shift from WPI to CPI happened:
• Urjit Patel Committee (2014) (the RBI's Expert Committee to Revise and Strengthen the Monetary Policy Framework) recommended that the RBI treat CPI (combined) as the key measure of inflation [5].
• India formally adopted flexible inflation targeting (FIT) in June 2016. Under FIT, keeping prices stable, measured by a CPI inflation target, is the main goal of monetary policy [6].

• On 5 August 2016, the Central Government notified a target of 4% CPI inflation, with an upper tolerance limit of 6% and a lower limit of 2% (4% ± 2%), for 5 August 2016 – 31 March 2021 [6].

• Why CPI replaced WPI:

• CPI reflects the prices people actually pay, including services.

• Inflation expectations of households and wage bargaining follow retail prices, not wholesale prices.

• New CPI base: MoSPI now releases CPI with base 2024 = 100 [7].

• The basket and weights come from the Household Consumption Expenditure Survey (HCES) 2023-24 [7][8].
• It uses the COICOP 2018 classification (the UN's standard list of household spending by purpose) in place of the old six broad groups [8].
• The number of weighted items rose from 299 to 358 [8].
• The weight of food and beverages is now 36.75% (NCERT/2012 series: 45.86). Food is still the largest component [8].

7. Core inflation

• Core inflation is inflation after removing volatile food and fuel items.
• It shows the underlying, demand-driven pressure on prices, the part that monetary policy can actually influence.

• Food prices follow the monsoon and fuel prices follow world oil markets. The repo rate cannot fix a bad harvest.

• Current measure: CPI excluding food and fuel.

• NCERT is outdated here: it measures core inflation as WPI non-food manufactured products, about 55% of WPI.
• Worked example: in a given year, headline CPI inflation is 6%. Food prices rise 10% after a poor monsoon, while core inflation is 4%.
• Most of the headline rise comes from food.
• Underlying demand is at the target level, so the RBI may not raise the repo rate (the rate at which the RBI lends short-term money to banks).
• If core inflation were 6% too, demand pressure would be broad-based and tighter policy would be justified.

8. Why WPI and CPI diverge

Feature	CPI-C	WPI
Prices	Retail	Wholesale (bulk)
Services	Included (housing, health, education, transport)	Excluded
Heaviest part	Food (45.86 in 2012 series; 36.75 in 2024 series [8])	Manufactured products (64.23, 2011-12 series)
Sensitive to	Monsoon, vegetables, pulses	Global commodities, crude oil, metals
Compiler	NSO (MoSPI)	OEA-DPIIT
Base (latest)	2024 = 100 [7]	2022-23 = 100 [2]

• Example: 2022 commodity and oil shock. WPI inflation reached double digits while CPI stayed around 7%.

• WPI inflation was 12.41% in August 2022 and 10.7% in September 2022 [4].

• Negative WPI with positive CPI: this happened in 2015–16 and mid-2023.

• Global commodity prices fell, which pulled WPI down.

• Food and services kept rising, which kept CPI positive.

• What the gap signals:

• WPI runs ahead of CPI: firms face cost pressure (wholesale price → factory cost → shop price). This may pass through to retail prices after a lag.
• CPI runs ahead of WPI: food or services are driving inflation, not raw materials.

Prelims Hooks

• WPI is compiled by the Office of the Economic Adviser, DPIIT (Ministry of Commerce and Industry). It is not compiled by MoSPI. CPI is compiled by NSO, MoSPI.
• WPI covers goods only. It has no services and no reference consumer group.
• New WPI base: 2022-23, released 15 June 2026. Items rose from 697 to 957, and weights are now based on Gross Value of Output [2][3].
• WPI will run alongside the PPI for 5 years and then be discontinued [2].
• Services PPI covers seven services: banking, securities, insurance, pension fund management, railways, air passenger transport and telecom [3].
• PPI measures prices received by producers and excludes taxes, trade margins and transport.
• 2011-12 WPI weights: manufactured products 64.23 > primary articles 22.62 > fuel and power 13.15. The WPI Food Index weight is 24.23.
• Headline inflation in India now means CPI-C inflation. Core inflation is CPI excluding food and fuel. NCERT's WPI-based definitions are outdated.
• Urjit Patel Committee (2014) led to CPI becoming the key inflation measure. The FIT target is 4% ± 2% CPI, notified on 5 August 2016 [5][6].
• CPI 2024 series: food and beverages weight is 36.75% (earlier 45.86). Weighted items rose from 299 to 358, and the series uses the COICOP 2018 classification [8].

Mains Points

• Choice of anchor: CPI replaced WPI as the policy measure because households, wages and inflation expectations follow retail prices [5][6].

• WPI still matters as an early warning of cost pressure. For example, WPI inflation reached 12.41% in August 2022 during the commodity shock [4].

• WPI to PPI shift (2026): the PPI removes double counting of taxes and margins and adds services.

• This brings India closer to international statistical practice [3].

• The five-year overlap protects escalation clauses in infrastructure and supply contracts [2].

• Headline vs core in policy: the RBI targets headline CPI but watches core inflation to separate supply shocks from demand pressure.

• Monsoon-driven food spikes need supply-side action, such as buffer stocks, easier imports and better storage. Repo rate hikes do not help.

• Food's lower weight in CPI 2024 (36.75%) may reduce this volatility [8].

• WPI–CPI gap as a diagnostic: a positive WPI-minus-CPI gap points to input-cost pass-through and pressure on firms' margins.

• A negative gap, as in 2015–16 and 2023, points to inflation driven by food and services, with weak pricing power for manufacturers.