Skip to main content

New Wholesale Price Index (WPI) Index

 

 

 

Last month the government revised the wholesale price index (WPI), making it more broad-based and representative of inflation in the present context. The new index will cover 676 items compared to 435 earlier. The number of price quotations that will be used for producing the index has been increased from 2,000 to 5,500. The base year has also been changed from 1993-94 to 2004-05. The immediate impact of this revision was a drop in the August inflation figure from 9.5 per cent (according to the old index) to 8.5 per cent.

 

Change in product basket


The new index will now measure price changes in 241 more items than the earlier index, which measured price changes in 435 items. Of the 435 items, the government has retained only 259 and added 417 new items (62 per cent) to the new index.

 

The index comprises three product categories - primary articles, fuel and manufactured products. The manufactured products category has seen the maximum revamp with 169 items from the earlier basket being dropped and 406 new ones being added. While the fuel basket remains unchanged, the primary articles category has seen seven items being dropped and 11 new ones being added.

 

Items such as ready-made food, computer stationery, dish antennas, ice cream, condensed milk, soft drinks and VCDs have been added, while some items such as TV sets (B&W), scooters, plastic items, printing items and fireworks have been dropped or revised. "Seasonal items now do not show up in the WPI once they disappear from the market, and their weights are redistributed across the WPI. Thus, these factors may exacerbate seasonality in the new series," says Tushar Poddar, economist at Goldman Sachs. According to Jay Shankar, chief economist and vice-president, Religare Capital Markets, the new index is more in line with people's current consumption patterns. "Many items such as alarm clocks that were used in the early nineties are no longer used today. Similarly many new items such as mobile phones that are used today were not in existence earlier. Therefore, to make the index more relevant to today's context, there was a need to overhaul it," he says.

 

Weightage revised


In the new index, the weightage of manufactured products is 65 per cent (up from 63.8 per cent in the earlier index), of primary articles is 20.1 per cent (down from 22 per cent) and that of fuels is 14.9 per cent (up from 14.2 per cent). The drop in August inflation figure can be attributed to the drop in weightage of food articles in the revised index. In the new index, food articles have been assigned a weightage of 14.3 per cent, down from 15.4 per cent earlier.

 

The number of price quotations to be used has been increased from 1,981 to 5,482. Says Jay Shankar: "The more quotations you have, the better and more accurate the inflation numbers become."

 

In India, WPI is the most closely tracked inflation index. Being most commonly quoted in the media, it influences both public perception of how high inflation is and policymakers' decision making (particularly monetary policy). As the decades go by, people's consumption patterns change. The WPI then must undergo periodic makeovers to make it more representative and contemporary. This is what the new index should hopefully achieve.

 

New WPI - Weights and Items

 

 

 Weight

 

 

  

 Number of Items

 

 

 

 

 

 

 

 

 

 

 

 2004-05

 

 1993-94

 

 2004-05

 

 1993-94

 

 Common

 

 Dropped/ Revised

 

 New Items

 

PrimaryArticles

 

20.1

 

22.0

 

102

 

98

 

91

 

7

 

11

 

FuelIndex

 

14.9

 

14.2

 

19

 

19

 

19

 

0

 

0

 

ManufacturedProducts

 

65.0

 

63.8

 

555

 

318

 

149

 

169

 

406

 

AllCommodities

 

100.0

 

100.0

 

676

 

435

 

259

 

176

 

417

 

Source: Office of the Economic Advisor

 

Popular posts from this blog

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

Myths about Exchange Traded Funds (ETFs)

1) ETFs Are Similar to Individual Stocks: Like MFs, ETF consist of an underlying portfolio of securities that's designed to follow a specific index or investment strategy. Hence, they are as diversified as various mutual funds. 2) ETFs Only Invest in Equity: Since they are listed on the exchange, the general belief is that ETF only consists of equity asset class. Globally, ETFs are available across asset classes – equity, debt, commodities, real estate and so on. In fact, over the past couple of years, India has also seen the emergence of Gold ETFs. 3) All ETFs Are Index Funds: ETF started as a fund which used to track indices and hence they were branded as index funds that are listed. However, ETFs have progressed rapidly and are no longer associated only with passive index funds. Globally, we have seen the launch of actively-managed ETFs. In India, also we recently saw the emer gence of fundamentally-weighted ETFs on Nifty, which busts the myth that ETFs are index funds and can...

What are the factors affect the changes in Interest Rate of Fixed Deposits?

  What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India   - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession   - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...

REC Tax Free Bond Issue

Tax Saving Mutual Funds Online Current open Infra Bond Application form   Download REC Tax Free Bond Application Forms REC (Rural Electrification Corporation) is going to issue tax free bonds and the issue will open on March 6 2012 and will close on the 12th of March 2012 When you buy 80CCF infrastructure bonds, the amount you invest in those bonds get reduced from your taxable income but in these bonds that's not going to be the case. The interest on these bonds will be tax free and they are similar to the other tax free bonds like the HUDCO, NHAI and PFC issues. For the two of you interested in knowing this – these bonds are tax free under Section 10(15)(iv)(h) of the Income Tax Act. Now on to the issue itself and let's start with the high credit rating that the issue has got. The REC tax free bond issue has been given the highest rating by all issuers since the government owns the majority stake (66.8%) in REC, it has been consistently profit making,  this is a se...

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now