Centre to launch new series WPI, producer price indices on June 15

Starting June 15, the Centre will start new data frameworks for estimating inflation at the wholesale and producer level. To this end, the government will launch the new series of wholesale price index-based inflation with a base year of 2022-23 as well as three indices for producer price inflation – output PPI, input PPI and a service PPI.

The plan is to eventually phase out the WPI inflation index over the next five years – by 2031 and use only the three indices for PPI, officials said on Tuesday.

“The Office of Economic Adviser, Department for Promotion of Industry and Internal Trade will accordingly release the revised series of WPI with base year 2022-23 on June 15 at 12 noon, which would replace the existing series of WPI with base year 2011-12,” said an official statement.

In addition, the Office would also release a new series of Output Producer Price Index (OPPI), Trial Input Producer Price Index (IPPI), and Service Producer Price Index (Service PPI) of seven services --  banking, securities transaction, insurance, management of pension funds, railways, air (passenger), and telecom with base year 2022-23, it further said.

PPI:

While the Output and Input PPI would be released monthly, the Service PPI would be released on a quarterly basis.

Simply put, the WPI tracks prices at the wholesale level while the PPI monitors basic prices at the farmgate and factory gate level without including taxes. However, moving closer to the PPI in the past, the WPI with the base year of 2011-12 also tracks only basic prices exclusive of taxes.

“The PPI is more consistent with the national account structure. It eliminates double counting and in the long run can be used for double deflation in the national accounts,” explained Praveen Mahto, Principal Economic Adviser, DPIIT. 

Officials said the input and output PPIs will be able to show the value addition in each industry and will give a better idea of prices faced by producers of goods and services. “Availability of both the Output PPI and Input PPI gives a better understanding of the price movements of output items vis-a-vis input items being used in an industry. It also explains how inflation experienced by producers on input items is passed through the output being produced,” said the official release.

The Services PPI will slowly be expanded to the entire service sector, and a data framework on services has been sought from the GST Network for this.

The transition to the PPI and move away from the WPI is expected to be done by 2031 and will require the industry to slowly move away from tracking the PPI. This is especially important as several contracts use the WPI for cost escalation clauses.  For now, data on both the WPI and PPI will be released.

The Department of Expenditure in the Finance Ministry is also expected to issue a circular asking government ministries and departments to slowly transition to the PPI for building in cost escalation provisions in their contracts.

 

WPI series:

The total number of items in the new series of WPI has increased to 957 from the current 697. New sources of energy, such as solar and wind, have been added under the ‘Electricity’ Group. In addition, Nuclear Electricity has been included in the basket. The structure for tracking energy prices has also been integrated. Now, crude petroleum and natural gas have been shifted from the ‘Primary Articles’ to the ‘Fuel and Power '. “This reorganisation would lead to better alignment, as this group already houses other major fuels such as coal, electricity, and petroleum products,” the release explained.