MONEY AND BANKING (Part – I)

Wholesale Price Index, or WPI, measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
Wholesale market is only for goods, one cannot buy services on a wholesale basis. It is used to track the supply and demand dynamics in industry, manufacturing and construction. The index is released by the Economic Advisor in the Ministry of Commerce and Industry every month. The quantum of rise in the WPI month-after-month is used to measure the level of wholesale inflation in the economy.
The index is based on the wholesale prices of number of relevant commodities available. The commodities are chosen based on their significance in the region. These represent different strata of the economy and are expected to provide a comprehensive WPI value.
Number of commodities: 697 items
Base year: 2011-12..

Wholesale Price Index, or WPI, measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
Wholesale market is only for goods, one cannot buy services on a wholesale basis. It is used to track the supply and demand dynamics in industry, manufacturing and construction. The index is released by the Economic Advisor in the Ministry of Commerce and Industry every month. The quantum of rise in the WPI month-after-month is used to measure the level of wholesale inflation in the economy.
The index is based on the wholesale prices of number of relevant commodities available. The commodities are chosen based on their significance in the region. These represent different strata of the economy and are expected to provide a comprehensive WPI value.
Number of commodities: 697 items
Base year: 2011-12..

Major Components of WPI
'Primary articles' (22.62%) is a major component of WPI, further subdivided into Food
Articles and Non-Food Articles:
Food Articles: Cereals, Paddy, Wheat, Pulses, Vegetables, Fruits, Milk, Eggs, Meat & Fish, etc.
Non-Food Articles: Oil Seeds, Minerals and Crude Petroleum.
The next major basket in WPI is Fuel & Power (13.15%), which tracks price movements in Petrol, Diesel and LPG.
The biggest basket is Manufactured Goods (64.23%). It spans across a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, and more.
Manufactured Goods basket also includes manufactured food products such as Sugar, Tobacco Products, Vegetable and Animal Oils, and Fats..

Major Components of WPI
'Primary articles' (22.62%) is a major component of WPI, further subdivided into Food
Articles and Non-Food Articles:
Food Articles: Cereals, Paddy, Wheat, Pulses, Vegetables, Fruits, Milk, Eggs, Meat & Fish, etc.
Non-Food Articles: Oil Seeds, Minerals and Crude Petroleum.
The next major basket in WPI is Fuel & Power (13.15%), which tracks price movements in Petrol, Diesel and LPG.
The biggest basket is Manufactured Goods (64.23%). It spans across a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, and more.
Manufactured Goods basket also includes manufactured food products such as Sugar, Tobacco Products, Vegetable and Animal Oils, and Fats..

Major Components of WPI
'Primary articles' (22.62%) is a major component of WPI, further subdivided into Food
Articles and Non-Food Articles:
Food Articles: Cereals, Paddy, Wheat, Pulses, Vegetables, Fruits, Milk, Eggs, Meat & Fish, etc.
Non-Food Articles: Oil Seeds, Minerals and Crude Petroleum.
The next major basket in WPI is Fuel & Power (13.15%), which tracks price movements in Petrol, Diesel and LPG.
The biggest basket is Manufactured Goods (64.23%). It spans across a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, and more.
Manufactured Goods basket also includes manufactured food products such as Sugar, Tobacco Products, Vegetable and Animal Oils, and Fats..

The Wholesale Price Index (WPI) measures and tracks price changes in the wholesale market, focusing on goods traded between companies. It excludes services and is calculated monthly, representing a broad view of inflation at the wholesale level. In India, it is published by the Office of Economic Adviser, Department for Promotion of Industry and Internal Trade, with base year 2011-12.
The Consumer Price Index (CPI) tracks changes in the cost of a typical basket of goods and services over time, reflecting the overall shift in consumer prices. It is a key inflation measure monitored closely by policymakers, financial markets, businesses, and consumers alike. Unlike WPI, it includes services. The Central Statistics Office of the Ministry of Statistics and Programme Implementation publishes it.
The Producer Price Index (PPI) measures price changes from the perspective of producers, capturing input cost changes across manufacturing and production sectors. While PPI does not account for consumer prices, it provides insight into cost pressures that may eventually impact retail prices.

• PPI measures wholesale prices from the point of view of producers of goods and services by tracking prices at different stages of production.
• It looks at inflation from the viewpoint of industry and business and measures price changes before consumers purchase final goods and services.
• It has replaced WPI in most countries as it is conceptually in line with the internationally agreed System of National Accounts (SNA) to compile measures of economic activity....
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Inflation can stem from various economic factors, including increased demand, higher production costs, structural issues, or supply constraints in specific sectors. Understanding these causes helps in crafting effective inflation control strategies.

• Demand-Pull Inflation: Demand-pull inflation occurs when an increase in the supply of money and credit causes overall demand for goods and services to rise faster than the economy's production capacity. This increases demand, which leads to price increases.
• Cost-Push Inflation: Cost-push inflation is caused by an increase in prices for inputs used in the production process. When more money and credit are channelled into commodity or other asset markets, prices for all types of intermediate goods rise. This is especially evident when a negative economic shock disrupts the supply of key commodities.
• Built-in Inflation: Built-in inflation is associated with adaptive expectations, which hold that current inflation rates will persist in the future. People may expect the price of goods and services to continue rising at a similar rate in the future.
• Structural Inflation: Structural inflation occurs due to economic issues such as rigid supply chains or monopolistic market structures, leading to periodic price hikes in specific sectors.
• Protein Inflation: Specifically related to the food sector, protein inflation refers to price increases in protein-rich food products like pulses, eggs, and meat, often due to demand shifts or supply constraints.

Central Banks use monetary policy to manage economic fluctuations and achieve price stability. Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means i.e. by increasing interest rates. They are doing the same to contain the post-pandemic inflation. Hence, both statements are correct and Statement-II is the correct explanation of Statement-I.