A Wholesale Price Index (WPI) measures the change in the overall cost of goods before they reach the retail stage. This index captures prices charged by manufacturers and wholesalers (often outside of the U.S.). Typically displayed as a percentage change from the previous month or year, the WPI is a crucial indicator for tracking inflation.
In the U.S., this measure has been known as the Producer Price Index (PPI) since 1978.
Key Takeaways
- A Wholesale Price Index (WPI) gauges overall changes in producer prices over specific periods.
- It measures inflation based on the cost of goods before consumer purchase.
- Renaming the U.S. WPI to the Producer Price Index (PPI) in 1978 tailored it more accurately to prices from producers rather than wholesale intermediaries.
- The U.S. PPI features indexes for product categories, differentiating between intermediate and finished goods.
How a Wholesale Price Index (WPI) Shapes Up
Monthly reports of wholesale price indexes trace changes in producer and wholesale prices. Using a base period typically set at 100, subsequent price changes are calculated to reflect the total output of goods.
For example, if we consider January 2021 as the base period and see an overall price increase of 9.7% over the year, the WPI for January 2022 would be 109.7.
WPIs mainly consider commodity prices. The included products may vary by country, with some small nations comparing prices for 100 to 200 products while larger economies evaluate thousands. The list of products can change as required, ensuring an up-to-date reflection of economic conditions.
Wholesale Price Index vs. Producer Price Index
The U.S. began its wholesale price index reporting in 1902. It was renamed the Producer Price Index (PPI) in 1978 to more accurately represent the measurement of prices from producers rather than wholesale markets.
The Bureau of Labor Statistics (BLS) updated the methodology to categorize goods based on production stages, thus eliminating double counting. Current PPI methodology aggregates prices into final demand and intermediate demand indexes, distinguishing whether the price pertains to finished products or intermediate goods.
Related Terms: Consumer Price Index (CPI), inflation, intermediate goods, base year.
References
- U.S. Bureau of Labor Statistics. “Producer Price Index Frequently Asked Questions”, Select 3. When Did the Wholesale Price Index Become the Producer Price Index?
- Lawrence J. Kaplan. “A Guide to the Federal Government’s Indexes of Wholesale Prices”. The Analysts Journal, vol. 13, no. 1, February 1957, pp. 31-37.
- Britannica. “Wholesale Price Index”.
- U.S. Bureau of Labor Statistics. “Producer Price Index Frequently Asked Questions”, Select 2. How are PPIs used?
