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Finalisation of New Producer Price Index (PPI) Model
Context: Department for Promotion of Industry and Internal Trade (DPIIT) announced the finalisation of a new Producer Price Index PPI model.
More on News:
- The new model aims to efficiently capture input prices in the economy.
- The government is considering changing the base year of the wholesale price index (WPI) from 2011-12.
- There is a move towards transitioning from WPI to PPI, in line with most G20 economies.
Producer Price Index (PPI)
- It is a new index introduced by the Ministry of Commerce and Industry in 2020.
- PPI measures the average change over time in selling prices received by domestic producers of goods and services, capturing price changes from the seller’s perspective.
- This contrasts with the Consumer Price Index (CPI), which measures price changes from the purchaser’s perspective.
- Differences between sellers’ and purchasers’ prices can arise from factors like government subsidies, taxes, and distribution costs.
- It has replaced WPI in most countries as it aligns with the internationally agreed System of National Accounts (SNA) for compiling economic activity measures.
System of National Accounts (SNA)
- It is the internationally agreed standard set of recommendations on how to compile measures of economic activity.
- It provides a coherent set of macroeconomic accounts based on agreed concepts, definitions, classifications, and accounting rules.
- It records how production is distributed among consumers, businesses, government, and foreign nations, showing how income flows to these groups and is allocated to consumption, saving, and investment.
- It supports economic analysis and policy formulation, accommodating countries at different stages of development and ensuring consistency across various economic statistics.
