The Consumer Price Index (CPI) and Wholesale Price Index (WPI)

Retail inflation (CPI) has been increased to 4.62% which is 16-month high and above the targeted rate of inflation. Increase in Consumer Price Index (CPI) is due to food inflation which has increased to 6.93% . This increase of inflation is higher since 2016. Recently there has been a growing divergence between WPI and CPI in the Indian Economy. Both WPI and CPI are used to measure the rate of inflation in the country. In September 2019, the WPI rate of inflation was only around 0.33% and according to the latest estimates the CPI has increased to 4.62% .

The Consumer Price Index (CPI) and Wholesale Price Index (WPI)

Wholesale Price Index (WPI)

  • WPI is used to measure the rate of inflation in the economy.
  • It measures the rate of inflation at wholesale level.
  • It represents the price of goods at a wholesale stage.
  • Wholesale Price Index is calculated by Office of Economic Advisors which works under the Ministry of Commerce and Industry.
  • The base year for calculation of wholesale price index is 2011 - 12.
  • The categories of commodities under Wholesale Price Index are includes primary articles, manufacturing products and fuel and power.
  • Highest weightage is to be assigned to manufacturing products.
  • Increase in food commodities lead to increase in the WPI rate of inflation but is less than compared to CPI.
  • Services are not included in wholesale price index.

Consumer Price Index (CPI)

  • It measures the rate of inflation in the prices of goods and services at the retail level.
  • CPI calculated by the National statistical office (NSO) which works under the Ministry of Statistics and Program Implementation.
  • The base year for calculation of CPI is 2012.
  • The categories of commodities under consumer price index are including food and beverages, pan, tobacco and intoxicants, clothing and footwear, fuel and light and miscellaneous categories includes services like education health care and transportation.
  • Services are included in CPI.
  • The highest weightage is to be assigned to food and beverages.
  • Increase in food commodities leads to increase in the CPI rate of inflation it shows highest impact on CPI as compared to WPI.
  • Earlier RBI targeted the WPI after the recommendations of the Urjit Patel committee the RBI started to targeting consumer price index for rate of inflation.

Reasons for Divergence between CPI and WPI

  • The prices of food commodities, fruits and vegetables are increasing and supply side for this the CPI will increase.
  • Increase in prices of food commodities leads to decrease in the price of manufactured products including fuel and power.

Examrace Team at Aug 20, 2021