Many countries still use WPI-Based inflation tracking
By Nantoo Banerjee
It is good that the government has finally decided to introduce the Producer Price Index (PPI) as a more reliable inflation tracker than the Wholesale Price Index (WPI). However, it may not be desirable to dump WPI entirely after a period of the next five years. Wholesale price levels remain highly valuable to assess inflation in a country like India. For instance, domestic producer price of items such as petroleum and pharmaceuticals in India has little link to their market price. Central banks in many countries use both these indices as important indicators. Because changes in input and production costs (what factories pay) typically pass through to consumer retail prices (what you pay), economists use this data to forecast future consumer inflation trends.
In India, crude oil is mostly imported. The domestic output is just around 10 percent of the country’s requirement. As a result, the domestic market is entirely dictated by global import prices. The producer price of domestic crude oil is believed to be much less than the import price. While the actual cost of extracting this oil in India is low, the price at which domestic producers sell it is largely tied to international market rates and government formulas (e.g., pricing formulas linked to imported crude.) India being a price-taker, this import price is volatile and fluctuates daily based on international geopolitics, supply-demand dynamics, and the rupee-to-dollar exchange rate. Similarly, producer price of medicines, especially prescription drugs, has little link with their wholesale and consumer price which include post manufacturing expenses (PME) which may vary from 500 percent to 2,000 percent or even more.
Interestingly, India’s provisional Wholesale Price Index inflation surged to 8.30 percent year-on-year in April 2026, up sharply from 3.88 percent in March. This marked the highest wholesale inflation rate since October 2022, primarily driven by spikes in fuel, food, and manufacturing costs. On the contrary, India’s latest retail inflation, measured by the Consumer Price Index, stood at 3.48 percent (provisional) for April 2026 compared to the same month last year. The headline CPI index value is 105.12. This data utilizes the updated base year of 2024 = 100.
Many nations use both PPI and WPI to track inflation more accurately. For instance, Japan actively tracks the Corporate Goods Price Index (CGPI), which functions as their PPI tracking producer output/input costs, while also compiling and releasing a legacy WPI to monitor transaction prices between businesses. The Philippines government actively maintains both indices, with the WPI acting as an essential inflation guide for bulk sales, while the broader PPI monitors industry output price movements. However, it may be noted that many other economies like the US, China, Germany, France, Australia and the UK rely solely on the PPI to measure producer inflation, as it covers both goods and services and aligns with modern economic accounting. The PPI acts as a critical leading indicator of inflation, as changes in factory gate prices usually trickle down to consumer prices over time.
The WPI measures average price changes of goods sold in bulk at the wholesale level. While major economies transitioned to the globally standardized PPI, many countries still publish WPI-based inflation tracking. Japan tracks domestic corporate goods prices using methods synonymous with a WPI. Germany’s the Erzeugerpreise acts as their producer and wholesale price barometer. Canada tracks industrial product price (IPP) changes. Indonesia publishes Statistics Indonesia (BPS) to monitor bulk commodity prices. Italy tracks wholesale prices across domestic and imported goods (often reported via Moody’s Analytics Wholesale Price Index.) South Korea measures price movements across goods originating from and trading within domestic markets. Brazil tracks industrial and wholesale price aggregates (often monitored via Trading Economics Wholesale Prices).
However, it must be appreciated that the PPI is widely considered a more accurate tool for tracking inflation than the WPI. In fact, the PPI has several structural advantages. The WPI only tracks goods. Because services now make up over 50 percent of India’s economy, the WPI misses a massive portion of economic activity. The PPI tracks service sectors (like banking, telecom, and insurance) alongside goods. The WPI counts intermediate goods multiple times as they pass through various stages of production (e.g., steel, then auto-parts, then the final car). This artificially inflates the measured inflation rate. The PPI tracks output and input prices separately to avoid this.
The PPI includes both an Input Index (what businesses pay for materials and services) and an Output Index (what they receive). This creates an early-warning system that shows how rising production costs get passed on to consumers. The WPI only measures domestic wholesale transactions and completely excludes goods that are exported. The PPI captures producer price dynamics globally. In India, the WPI has historically been used in long-term commercial contracts and government price-escalation clauses. Therefore, the transition away from it must be gradual. Many countries transitioned to PPI as their primary measure of producer-level inflation.
Finally, it must be said that neither the WPI nor the PPI is the best measure for the cost of living. Neither index is “better” overall; they simply track inflation from different perspectives. For retail inflation and the interest rates set by the RBI, the Consumer Price Index (CPI) holds the key as it reflects the actual prices paid by end consumers. While the PPI is the best measure for tracking production and business costs, neither WPI nor PPI is the best measure for tracking the cost of living.
For retail inflation and the interest rates set by the RBI, CPI is the primary standard because it reflects the actual prices paid by end consumers. Major countries and global economies track inflation using CPI, PPI and gross domestic product (GDP) deflators. Economists use producer indices to strip out inflation from nominal growth data. Because PPI separates out indirect taxes and trade margins, it acts as a cleaner GDP deflator for tracking actual economic output. Adopting it follows International Monetary Fund (IMF) guidelines, giving foreign investors clearer comparability. (IPA Service)
