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Charts & Analysis

The Wholesale Price Index Can’t Be Trusted


The wholesale price index (WPI) comes to you every month, and we tend to analyse its implications based on change from last year, or last month, or whatever. But the index collection mechanism has its problems, with a very large number of items not having updated prices every month!

You don’t expect every single price to change every month. However to see that too many items in the index remain unchanged is scary. Take a look at the number of items that haven’t changed in price:

Unchanged Items in the WPI

This tells you a story. Nearly 24% of the index hasn’t been changed for a month, which means they’ll change in later months. About 6.7% of the index weight, and 90 items, haven’t changed in price for six months!

Does this mean these items are not impacted by inflation?

In some cases, this statement is probably true, like in the case of pencils. But the more likely explanation is: Are you bullshitting me?

This is just invalid data collection. I think they don’t update prices of many commodities because they either don’t collect the data, or the data they collect is flawed.

The items that haven’t seen price increases for a long time include:

  • Raw wool (47 months). This was one of the NSEL traded commodities, and raw wool prices have evidently gone up a lot recently. Yet, this price hasn’t been updated since November 2009. Is the WPI correct, or have we been shearing a lot more sheep recently?
  • Coke (30 months) (the stuff that’s burnt, not drunk). This is a globally traded commodity but I think the WPI takes prices from Coal India, once a year or something. Even then, for prices not to have changed since March 2011 raises an eyebrow.
  • Computer Peripherals (12+ months), Computers (4 months): This is funny, because prices change nearly every day.
  • Shampoo (11 months)
  • Lubricants (8 months)

I could go on, but this is scary indeed. Price updates are not coming in regularly. About 3% of the index, in weight, has not seen a price change in a year, and some items as long as 4 years.

This might be a good reason that the WPI Inflation (6%) is so disconnected from the Consumer Price Index (CPI) which is at 9%+.

WPI versus CPI

We can’t really trust the WPI anymore.


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