Producer Price Index and Wholesale Price Index

A Producer Price Index (PPI) measures changes in prices that domestic producers receive for their output, usually near the factory or farm gate. A Wholesale Price Index (WPI) measures changes in prices of goods transacted at the wholesale or bulk-sale stage, before retail sale.

Basis of price measurement

The conceptual difference is whose price is observed. PPI focuses on the producer's transaction price and is designed to exclude separately charged transport and trade margins. WPI focuses on the price recorded at a wholesale transaction, which may occur at the producer's premises, a mandi or another bulk-sale point.

• Because the first wholesale transaction may occur at the producer level, PPI and WPI can overlap, especially for manufactured goods.
• PPI valuation is intended to isolate price change accruing to producers, while WPI follows the valuation basis of the selected wholesale price quotation.

Coverage and classification

PPI is organised around domestic production and can cover goods as well as services. It may be compiled by product or producing industry, and separate output and input indices can be constructed. India's WPI is a commodity index confined to goods.

• India's WPI basket groups commodities under Primary Articles, Fuel and Power, and Manufactured Products.
• PPI can capture service-sector producer prices, whereas WPI does not naturally cover services because they are generally not traded through wholesale markets.

Analytical significance

An output PPI provides a clearer measure of inflation at the production stage and can support deflation of nominal output in national accounts. WPI remains useful for tracking broad goods-price pressures in bulk markets but is not a direct measure of either producers' receipts in every case or consumers' cost of living.

• Neither index measures retail inflation; that function belongs to the Consumer Price Index (CPI).
• In India, WPI is compiled by the Office of the Economic Adviser, DPIIT, with base year 2011-12.