The Producer Price Index (PPI) is an economic concept and a set of indices that measures the average change in prices received by domestic producers for their goods and services. It tracks inflation from the supply side by capturing price changes at the "factory-gate" or producer level, specifically excluding retail-level costs such as transport margins and taxes.
The PPI is being introduced to replace the Wholesale Price Index (WPI), a major structural reform that aligns India's statistical framework with global best practices and recommendations from the International Monetary Fund (IMF). The WPI, which only tracked goods, is being phased out because it did not include the services sector, which contributes over half of India's GDP.
The mechanism of the new PPI involves a three-pronged approach: the Output Producer Price Index (OPPI), the Trial Input Producer Price Index (IPPI), and the Services Producer Price Index (Services PPI). The OPPI measures the average change in basic prices received by producers for finished goods, while the Services PPI brings the services economy into production-level inflation tracking for the first time. The IPPI measures changes in the prices of raw materials and inputs purchased by businesses.
The transition is a recent and significant change: the Department for Promotion of Industry and Internal Trade (DPIIT) will release the new PPI series, along with a revised WPI series (with a new base year of 2022-23), starting June 15. The WPI will be published in parallel with the PPI for five years to allow businesses to transition their long-term contracts, which often use the WPI in price-escalation clauses, before the WPI is permanently discontinued. The PPI connects to the Consumer Price Index (CPI), which measures retail prices paid by consumers and is the primary index used by the Reserve Bank of India (RBI) for monetary policy decisions.