New Delhi, June 2 (IANS) After more than a decade of preparation, India is finally set to launch the Producer Price Indices (PPI) — marking a major shift in the country’s inflation measurement framework.
The new PPI series will be unveiled on June 15 alongside the revised Wholesale Price Index (WPI) with a new base year of 2022-23. For many people, the introduction of PPI may sound technical, but the concept is fairly simple.
The new framework is aimed at measuring inflation more accurately from a producer’s perspective and aligning India’s statistical system with global practices followed by advanced economies.
So, what exactly is Output PPI? Output PPI measures the prices received by producers for the goods they sell.
In simple terms, it tracks how much manufacturers earn when they sell their products before adding taxes and transportation costs.
This price is known as the “Basic Price” because it excludes net taxes as well as trade and transport margins.
For example, if a factory manufactures steel or packaged food products, Output PPI measures the price the producer receives directly from the buyer.
Input PPI, on the other hand, measures the prices producers pay while purchasing raw materials or inputs required for production.
Unlike Output PPI, it is based on the “Purchaser’s Price,” which includes transportation costs and trade margins.
This means Input PPI captures the inflation producers face while buying inputs such as fuel, chemicals, machinery parts or packaging material needed to manufacture goods.
Many people may wonder how PPI differs from the Wholesale Price Index (WPI), which India already publishes every month.
WPI is somewhat similar to Output PPI because both measure prices received by producers. However, the two differ in terms of methodology and weighting systems.
The WPI uses weights based on Gross Value of Output (GVO) estimates taken from National Accounts at a broader sector level.
In contrast, Output PPI uses a more detailed weighting structure derived from Supply Tables in the National Accounts framework.
The bigger difference lies between WPI and Input PPI. While WPI is based on Basic Prices, Input PPI measures Purchaser’s Prices, giving a clearer picture of actual costs faced by businesses.
One of the biggest benefits of moving from WPI to PPI is that PPI is more closely aligned with the National Accounts framework and follows international best practices recommended by the International Monetary Fund (IMF).
Another key advantage is that the combined use of Output PPI and Input PPI helps economists understand how rising costs of raw materials eventually get passed on to final products.
In other words, it allows policymakers and businesses to track how producer inflation moves through the supply chain.
The new framework is also expected to reduce the issue of double counting inflation, which can sometimes happen under the WPI system.
Unlike WPI, which mainly tracks goods, the PPI framework also includes services. In the first phase, Services PPI will cover seven services — banking, securities transactions, insurance, pension fund management, railways, air passenger transport and telecom services.
More services are expected to be added gradually as data availability improves.
–IANS
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