Government releases data related to consumer price index (CPI) and wholesale price index (WPI) of the country. WPI and CPI are the most commonly used measures to determine inflation.
Inflation is a rate at which prices of goods and services are rising in an economy. Inflation is always expressed as a percentage.
The main purpose of calculating consumer price index (CPI) and wholesale price index (WPI) is to measure inflation in the wholesale market and in the retail market. Both CPI and WPI are price indices.
In this article you will learn what is consumer price index (CPI), What is wholesale price index (WPI), and the difference between consumer price index and wholesale price index.
What is the wholesale price index (WPI)
The wholesale price index (WPI) measures the change in the prices of overall goods at wholesale level before they are sold at retail. This means it measures changes in wholesale or producer prices over a period of time.
Wholesale price index (WPI) is an inflation indicator at the producer level.
Inflation in the wholesale market is measured by WPI, which is why it’s known as wholesale inflation rate. This means it’s a measure of inflation based on prices of goods before they reach consumers.
Wholesale price index (WPI) is based on inflation data released by the Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT).
WPI is dominated by the price of manufactured goods. When prices of manufacturing goods go up, wholesale inflation rises.
Remember, Wholesale price index (WPI) does not take into account the change in prices of services such as transport, education, recreation, amusement and personal care etc. If services get costlier, then retail inflation will rise but there will be no change to WPI inflation.
To understand the calculation of WPI, the first thing you need to know is what the base period is. The index is set at 100 for its base period in order to calculate price changes. For instance if the base year is april 2021 and price rose 10% over the next year, the WPI for April 2022 will be at 110.
To calculate wholesale price index (WPI), different types of commodities have different weightage.
In India, primary articles such as prices of crude petroleum & natural gas, minerals, food articles, and non-food articles have assigned 22.62% weight. Fuel & Power such as mineral oils and coal has a weight of 13.15% and manufactured products have weight of 64.23%.
Out of the primary articles and manufactured products, food articles such as cereals, paddy, pulses, wheat, vegetables, potato, onion, fruits, milk, eggs, meat & fish etc and food products from manufactured products group has a weight of 24.38%.
The problem with wholesale price index (WPI) is that it does not measure price changes at the retail level. Therefore to measure retail inflation, the consumer price index (CPI) is used.
What is the consumer price index (CPI)
Consumer price index or CPI is measured by the Ministry of Statistics and Programme Implementation (or MoSPI). The consumer price index measures the change in prices paid by Indian consumers over a period of time for a basket of goods and services.
Department calculates consumer price index (CPI) as a weighted average of prices for a basket of goods and services. These goods and services are broken into different groups.
Consumer price index (CPI) is dominated by prices of food articles. This means if prices of food articles go up, then retail inflation will rise more than the wholesale inflation.
In order to calculate consumer price index (CPI), the government collects prices monthly from retail and service establishments.
Retail inflation rate in India is measured by the consumer price index (CPI). It’s one of the most common economic measures to indicate the health and direction of the economy.
In India, recent changes in prices are primarily due to rise in prices of mineral oils, basic metals, crude petroleum & natural gas, chemicals and chemical products, food products etc.
What is the major difference between CPI and WPI?
Let us discuss certain points to know the major difference between wholesale price index (WPI) and consumer price index (CPI).
| Consumer price index (CPI) | Wholesale price index (WPI) |
|---|---|
| CPI stands for consumer price index | WPI stands for wholesale price index |
| Published by Central Statistics Office, Ministry of Statistics and Programme Implementation (or MoSPI) | Published by Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT) |
| CPI captures price changes at the level of the end consumer or retailer. | WPI tracks price changes at the level of producer or wholesaler. |
| It captures price changes to both goods and services. | It does not capture price changes of services. It’s restricted to goods only. |
| More weightage is given to price changes in food items. | More weightage is given to manufacturing products. |
Sometimes you will find a higher difference between CPI inflation and WPI inflation rates. It’s primarily due to different composition and weightage of oil and food items in wholesale and retail inflation.
For instance fuel has a higher weightage in wholesale price index (WPI) than Consumer Price Index (CPI), due to which wholesale inflation will remain higher than retail inflation due to high fuel costs. Services are included in Consumer Price Index (CPI) but are not in wholesale price index (WPI). Any impact on prices of services will have a major difference in both inflation rates as CPI inflation rate will go up, whereas WPI inflation rate will have no impact.
Both wholesale price index (WPI) and consumer price index (CPI) are used to calculate the inflation rate of a country. CPI is used by the Reserve Bank of India as an important tool to determine inflation and to frame monetary policy in India. CPI is a worldwide accepted mode of calculating inflation compared to WPI.
