Also known simply as WPI, a wholesale price index is the current total price of a collection or basked of wholesale goods that are considered representative of products routinely purchased within a given country. It is not unusual for governments to establish the contents of these representative baskets, and review current pricing for those items on a regular basis. Often, the information gained from this strategy is used to assess the current level of inflation within the economy of a given nation. Some countries evaluate the wholesale price index as frequently as every ten-calendar days, while others conduct a monthly assessment of the index.
While similar to a consumer price index or CPI, the wholesale price index has a different focus. With the CPI, the task involves evaluating the pricing of selected products that are routinely purchased by individuals. In contrast, the wholesale price index focuses on purchases and trades that are made between corporations. Monitoring this trading activity between companies makes it easier to determine the presence of shifts in supply and demand within industries, based on the price movements of the selected products. The index can be broken down to provide useful data on what is happening within various industry sectors, such as construction or manufacturing, as well as present an overall snapshot of the status of industry within the particular country.
There is some variation in the way that a wholesale price index may be determined. One variation has to do with the type of products that are included in the assessment. Most nations will include products related to five basic commodity groups: agriculture, import and export activity, mining, manufacturing, and quarrying.
The number of products or commodities from each of these five groups may also vary, and will impact the outcome of the calculation. Many nations will analyze current pricing on over two thousand products that corporations trade with other corporations. In the most basic method, the pricing of each product is added to determine a total price amount for the period under consideration. That figure is then averaged in some manner, and the final result compared to past periods. If the index is higher than previous periods, this is a sign that the economy is undergoing some amount of inflation.
Another common method is known as the Ten-Day Price Index. In this model, products that demonstrate a relatively high rate of fluctuation within a given month are selected and assessed every ten days. The assumption here is that the pricing for all other products will remain more or less static. Only the figures for products with a higher intra-month fluctuation are specifically checked for changes before the averaging takes place.
