WPI Food Index

The WPI Food Index is a sub-component of the Wholesale Price Index (WPI) that measures the average change in wholesale prices of food items in the economy over time. It reflects inflationary trends in food commodities traded at the wholesale level—covering both agricultural and manufactured food products.
The WPI Food Index serves as a key indicator for analysing food inflation and is widely used by policymakers, economists, and analysts to monitor price stability and assess supply-demand conditions in India’s food economy.

Introduction and Background

The Office of the Economic Adviser (OEA) under the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, compiles and publishes the WPI and its components, including the WPI Food Index.
The WPI Food Index was introduced with the revision of the WPI base year to 2011–12 = 100 to capture price movements in food items more accurately. The new index was designed to complement the Consumer Food Price Index (CFPI) compiled by the Ministry of Statistics and Programme Implementation (MoSPI).
Together, the WPI Food Index and CFPI help monitor inflation trends at both the wholesale and retail levels.

Composition of the WPI Food Index

The WPI Food Index includes food items from two major groups of the Wholesale Price Index:

1. Primary Articles (Food Articles):
   • Covers agricultural and perishable commodities in their primary form.
   • Weight in WPI: 15.26% (within the overall Primary Articles group of 22.62%).

   Main Components:

   • Cereals (wheat, rice, maize)
   • Pulses (gram, tur, urad, moong, lentil)
   • Fruits and vegetables
   • Milk, eggs, meat, and fish
2. Manufactured Food Products (Processed Foods):
   • Falls under the “Manufactured Products” group.
   • Weight in WPI: 9.12% (out of 64.23% for the entire Manufactured Products group).

   Main Components:

   • Sugar, edible oils, bakery products, dairy products, beverages, and processed foods

Thus, the WPI Food Index = Food Articles (Primary) + Food Products (Manufactured)
Total Weight of WPI Food Index in Overall WPI:
15.26+9.12=24.38%15.26 + 9.12 = 24.38\%15.26+9.12=24.38%
This means food items account for nearly one-fourth of the total WPI basket, highlighting their significant role in influencing overall wholesale inflation.

Formula for WPI Food Index

The index is calculated using the Laspeyres formula, similar to the overall WPI:
WPI Food Index=∑(P1×W)∑(P0×W)×100\text{WPI Food Index} = \frac{\sum (P_1 \times W)}{\sum (P_0 \times W)} \times 100WPI Food Index=∑(P0​×W)∑(P1​×W)​×100
Where:

• P1P_1P1​: Current price of the commodity
• P0P_0P0​: Base year price of the commodity
• WWW: Assigned weight of each commodity

Purpose and Significance of the WPI Food Index

1. Measurement of Food Inflation:
   • Tracks changes in wholesale prices of food items over time.
2. Policy Formulation:
   • Helps the government and the Reserve Bank of India (RBI) assess inflationary pressures and plan fiscal and monetary interventions.
3. Agricultural Policy Evaluation:
   • Provides feedback on price trends in farm produce, guiding minimum support price (MSP) decisions and procurement policies.
4. Market Monitoring:
   • Used by economists to identify supply bottlenecks or seasonal price fluctuations in food commodities.
5. Link with Retail Prices:
   • Acts as a leading indicator for consumer food inflation (CFPI) and overall CPI movements.

Trends in WPI Food Inflation

• Volatility: Food prices are highly volatile due to factors like monsoon variations, supply disruptions, global commodity price trends, and storage constraints.
• Vegetable and Pulse Prices: These items often contribute significantly to short-term spikes in the WPI Food Index.
• Divergence with CFPI: Sometimes, WPI Food Inflation and Consumer Food Inflation (CFPI) differ due to differences in coverage, weights, and stages of price reporting (wholesale vs retail).

Difference Between WPI Food Index and Consumer Food Price Index (CFPI)

Example of WPI Food Index Calculation

Suppose the base year WPI Food Index is 100.In the current year, prices of cereals, pulses, and vegetables have increased by 10%, 8%, and 15% respectively. Weighted together, the composite index may rise to 110, indicating a 10% wholesale food inflation rate over the base year.

Importance in the Indian Context

1. Economic Planning:
   • Food price movements significantly influence overall inflation, rural incomes, and fiscal policy.
2. Agricultural Sector Performance:
   • Acts as a barometer of agricultural market conditions and supply chain efficiency.
3. Monetary Policy Indicator:
   • RBI monitors the WPI Food Index to gauge input price pressures that could feed into retail inflation.
4. Food Security and Welfare Programmes:
   • Helps assess affordability and guides subsidies or procurement under schemes like the Public Distribution System (PDS).
5. Price Stabilisation Measures:
   • Supports government interventions such as export-import regulation, buffer stocking, and market monitoring.

Challenges and Limitations

• Exclusion of Services: Does not include services like transport and distribution that influence food prices.
• High Volatility: Seasonal variations and supply shocks often cause large price fluctuations.
• Time Lag in Data: Though monthly, data may not capture rapid market changes.
• Limited Rural Representation: Focuses on wholesale markets, not on retail or local mandis where small producers sell.

Recent Trends

• Post-2019: WPI Food inflation has shown alternating periods of sharp increase and decline due to changing monsoon patterns and pandemic-related supply disruptions.
• 2021–22: Rise in edible oil and cereal prices contributed to high food inflation.
• 2023–24: Decline in some categories like pulses and vegetables moderated the index, but global supply issues (like grain exports) continued to influence price volatility.

Conclusion

The WPI Food Index is a crucial tool for understanding wholesale food price movements in India’s economy. By combining data on both primary and manufactured food products, it provides a comprehensive picture of food inflation at the producer level.