Wholesale Price Index (WPI)

The Wholesale Price Index (WPI) is a statistical index that tracks the average change in the prices of goods traded in bulk, before they reach shops and households. Statistics offices collect prices from wholesale markets, factory gates and primary producers for farm goods, fuels, metals, chemicals, textiles and machinery, then combine them into a single number compared with a base year. Governments, central banks and businesses use it as an early signal of price pressure moving through the supply chain.

The WPI sits beside the Consumer Price Index (CPI), which measures what households pay at retail. Many countries have replaced the WPI with a Producer Price Index (PPI): the United States Bureau of Labor Statistics renamed its wholesale index the PPI in 1978. India and Pakistan still publish a WPI. In Pakistan it is compiled monthly by the Pakistan Bureau of Statistics (PBS), alongside the CPI and the weekly Sensitive Price Indicator (SPI).

Think of a wholesale vegetable market at dawn. Traders buy sacks of onions, crates of tomatoes and drums of cooking oil, and later sell them in smaller amounts to corner shops. If the price of a sack of onions rises at the market today, shoppers will usually feel it in a few days or weeks. The WPI is a regular check on those dawn-market prices, but for hundreds of goods at once.

Because it watches the start of the chain rather than the shop shelf, the WPI often moves first. When fuel, wheat or steel costs jump in bulk, the index climbs, and economists treat that as a warning that retail prices may follow.

A WPI follows the same recipe as most price indices. The statistics office chooses a basket of goods, gives each one a weight based on its economic importance in the base year, collects prices on a fixed schedule and calculates a weighted average of price changes. Most offices use a Laspeyres-type formula, which keeps the basket fixed at base-year quantities:

• $p_t$ is the price of each item in the current period.
• $p_0$ is the price of the same item in the base year.
• $q_0$ is the base-year quantity (or value weight) of the item.

Worked example: suppose a two-item basket held 10 tonnes of wheat at 100 per tonne and 5 tonnes of steel at 200 per tonne in the base year, costing 1,000 + 1,000 = 2,000. A year later wheat is 110 and steel is 240, so the same basket costs 1,100 + 1,200 = 2,300. The index is $2{,}300 \div 2{,}000 \times 100 = 115$, meaning wholesale prices rose 15% on average.

The three main price measures look at different points in the chain:

• Wholesale Price Index. Prices in bulk trading markets, including imported goods but usually excluding services.
• Producer Price Index. Prices received by domestic producers for their output, often split by stage of processing, and increasingly including services.
• Consumer Price Index. Retail prices of a household basket, including rent, transport, education and other services, and including retail margins and sales taxes.

Because the WPI has no services and a heavy weight on fuels and raw materials, it swings more than the CPI. A rise in world oil prices or a fall in the exchange rate shows up quickly. The index is also used in contracts that adjust prices for cost changes, and as one input when statisticians build the GDP deflator and convert output to constant prices.

The PBS publishes Pakistan's WPI every month on base year 2015-16, the same base as its CPI and national accounts. According to the PBS methodology for that base, the index covers 419 items with prices collected from wholesale markets in 19 cities, normally between the 12th and 15th of each month. Item weights come from the value of marketable surplus: output less what producers keep for themselves, plus imports, less exports.

The 419 items fall into five groups. The largest weights go to ores, minerals, electricity, gas and water (about 31%) and to agriculture, forestry and fishery products (about 26%), so energy tariffs and crop prices drive much of the index. Earlier bases included 1959-60, 1969-70, 1975-76, 1980-81, 1990-91, 2000-01 and 2007-08.

Pakistan's WPI is widely read for signs of cost pressure on manufacturers. Large jumps often follow a weaker Pakistani Rupee (PKR), higher fuel and power tariffs or poor harvests, and the State Bank of Pakistan watches it alongside CPI inflation when setting monetary policy.

The WPI is useful for spotting supply and demand shocks early, for indexing long-term supply contracts and for deflating industrial output. It also tracks trends in the commodities market that matter to importers and exporters.

It has clear weaknesses. It leaves out services, which make up a large share of modern economies. Wholesale prices can count the same input more than once as it passes from raw material to finished good. The fixed basket ages as the economy changes, which is why indices are rebased every decade or so. And because the index does not reflect what households actually pay, it is a poor guide to the cost of living or to changes in purchasing power. Wage settlements and pensions are usually linked to the CPI instead, through a cost of living adjustment (COLA).

Periods when wholesale prices rise quickly while output stalls can point to stagflation, and a sustained fall can signal weak demand or a coming recession. Analysts also compare the WPI with broad measures such as the Global Supply Chain Stress Index to see whether price pressure comes from home or abroad, and with money aggregates such as Broad Money (M2) to judge whether demand is feeding it.

• Pakistan Bureau of Statistics: Price Statistics