About the Wholesale Price Index

Inflation is the bane of most industrialized economies. It represents a dangerous economic condition where the value of the currency is decreasing too rapidly. As a result, the price of goods throughout the country will start to rise steeply. To measure this phenomena, the Wholesale Price Index was developed. It measures the change in price for a basket of goods that are commonly traded between corporations.

Structure

The Wholesale Price Index is composed of a variety of items that are commonly produced and purchased in an economy. Most commonly, this index includes food items, durable goods and clothing. These items are considered to be essential to surviving in an industrial economy. Changes in the price for these items can signal a change in the inflation rate. Importantly, the Wholesale Price Index only measures the cost of these items as they are traded between corporations. In other words, it does not measure the cost that consumers pay.

Usage

The Wholesale Price Index is used to provide a barometer of the economic conditions in a country. Financial policymakers will closely monitor changes in this index. In fact, it is not uncommon for some governments to base major monetary policies around changes in this index. If the index rises, then it can be a warning sign that the inflation rate has increased. Conversely, when the index declines it can signal a decline in the inflation rate.

Evolution

Some disagreement has emerged as to whether this is the most accurate method for measuring the inflation rate in an economy. As a result, many countries have shifted their emphasis away from this measure. The current trend is for a combination of different measures to be consulted before economic policy changes. The reduced emphasis on this measure has called into question its role in the future.