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The Wholesale Price Index (WPI) measures average price changes over time in the stage prior to the final demand, covering therefore the flow of goods and services from the wholesaler to the retailer. Available on a daily, weekly, monthly, or quarterly basis, this index supplies information constructed from the point of view of gross transactions at the purchaser’s prices, information that is useful to understand, anticipate, or coordinate the economic activity, particularly in large-scale industrial economies. Because there is a short interval between the inquiries and the public release of the indexes (the norm being divulgation two weeks after the end of the month or the quarter), the information provided by the synthesis-numbers allows producers, traders, and government officials to gauge, at a glance, the current tendencies of economic evolution. This practical and utilitarian nature is further reinforced by the fact that the Wholesale Price Index captures price movements in advance to the retail level, and is likely to foreshadow subsequent changes in the price of goods and services purchased by consumers. In vertical, integrated markets this time advance tends to be shorter in circumstances of price increases and longer in price decreases.
Historically, the revolution in transportation and communications of the late nineteenth century paved the way for the appearance of this kind of aggregate measurement of prices. The connection between the network of enterprises and businessmen working out in distant regions became reinforced through the public diffusion of economic statistics such as prices composites, aggregate index of commodities, and wholesale price indices published by several U.S. newspapers. At the beginning of the twentieth century important nongovernmental institutions also set up solid reputations in the release of weekly and daily series of index numbers. The first official initiatives came out almost simultaneously in the United States (1902) and in Europe (United Kingdom, 1903), in response to parliamentary investigations into the effects of laws and tariffs on domestic prices. Japan saw the establishment of a Wholesale Price Index of Tokyo City in 1897, through the initiative of the Bank of Japan.
A major drawback of these pioneer undertakings was the proliferation of methods for computing the average price of the commodities, and also the limited coverage given by price quotations. The introduction of a system of weighting, combined with an enlarged sample of goods taken from widely distributed markets, under the responsibility of the United States Bureau of Labor Statistics in 1914 marked a new phase in the credibility of governmental agencies. Up to the present time, the formula that closely approximates the computation procedures in use around the world for weighting the “basket of commodities” comprised in the Wholesale Price Index is some variant of the index formula suggested by Etienne Laspeyres in 1871. Thanks to these developments, the scope of the Wholesale Price Index is additionally extended from a micro benchmark indicator and a reference for escalating purchase and sales contracts to a macroeconomic indicator for the formulation of fiscal and monetary policies, and to a deflator used to adjust economic time series.
Bibliography:
- Diewert, W. Erwin. 1988. The Early History of Price Index Research. NBER Working Paper No. W2713. http://www.nber.org/papers/w2713.pdf.
- Peltzman, Sam. 2000. Prices Rise Faster Than They Fall. Journal of Political Economy 108 (3): 466–502.
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