The Producer Price Index (PPI) is an economic concept and index that measures the average change in prices received by domestic producers for their output of goods and services. It focuses on the price at the factory gate or point of production, before wholesale margins and taxes are added. India's first set of PPI data was rolled out on June 15 by the Ministry of Commerce and Industry, initiating a transition to replace the Wholesale Price Index (WPI).
The PPI was introduced to solve the problem of the WPI being an imperfect measure of producer-level inflation because the WPI excludes the services sector, which accounts for over 50% of India's economy. The shift aligns India with international practices recommended by the International Monetary Fund (IMF). The mechanism involves three components: Output PPI (OPPI), which tracks prices received by producers; Input PPI (IPPI), which tracks the cost of inputs; and Service PPI (SPPI), which covers prices for services, starting with seven sectors like banking and telecom. The weights for the index are derived from the Supply Use Table, unlike the WPI's use of net traded value.
The PPI connects to the WPI and the Consumer Price Index (CPI), which measures prices paid by consumers. The government has set a five-year transition period during which the PPI and WPI will run in parallel before the WPI is discontinued. This transition is a recent change; the WPI itself was also revised, changing its base year to 2022-23 from 2011-12 and expanding its basket from 697 to 957 items. The PPI is also intended to be used to deflate nominal output when estimating real GDP.