Difference Between Wholesale Price Index and Consumer Price Index

Measuring inflation is crucial for understanding the health of the economy. Two important indexes used for this purpose are the Wholesale Price Index (WPI) and the Consumer Price Index (CPI). Both indexes provide insight into the changes in prices of goods and services in the country, but they measure different aspects of the economy and serve unique purposes.

Hence, this guide explains all about WPI vs CPI in detail.

Wholesale Price Index (WPI) is a measure of the average change in prices received by domestic producers for their output.

WPI is calculated using the Laspeyres formula, taking into account the costs of various commodity groups and their weightage in the economy.

• WPI measures the price changes in the wholesale market.
• It reflects the prices at the producer level.
• WPI captures prices of commodities at different stages of production.
• It is also used to track inflation in the economy.

The Reserve Bank of India uses WPI as an indicator of inflation in the wholesale market. WPI is considered a leading indicator of inflation as it reflects the price movements in the wholesale market before it reaches the consumer market.

Consumer Price Index (CPI) is a measure of the average change in prices of goods and services consumed by households. CPI is calculated based on the consumption expenditure patterns of households, taking into account the prices of goods and services consumed by households in various segments such as rural, urban, and combined.

• CPI measures the price changes in the consumer market.
• It reflects the prices at retail level.
• CPI captures prices of goods and services consumed by households.
• It is also used to track inflation in the economy.

The Reserve Bank of India uses CPI as an indicator of inflation in the consumer market to determine interest rates and make other monetary policy decisions. CPI is considered a lagging indicator of inflation as it reflects the price movements in the consumer market after reaching the consumer market.

1. Purpose

• Economists and analysts use WPI to make policy decisions.
• The RBI uses WPI to determine the interest rate.
• The government uses CPI to adjust social security payments, tax brackets and interest rates.

2. Measurement

• WPI captures the prices of commodities at different stages of production.
• CPI captures the prices of goods and services consumed by households.

3. Coverage and Sample Size

• WPI covers limited goods and services traded in the wholesale market.
• CPI covers a wider range of goods and services consumed by households.

4. Indicator of Inflation

• WPI reflects price movements in wholesale market before reaching consumer market.
• CPI reflects price movements in consumer market after reaching it.

5. Weightage

• WPI’s weightage is based on various shares in the wholesale market.
• CPI’s weightage is based on the consumption pattern of households.

6. Components

• WPI includes prices of raw materials, intermediate, and finished goods.
• CPI includes prices of goods and services consumed by households.

7. Base Year

• WPI’s base year is typically updated every 5 years.
• CPI’s base year is typically updated every 10 years.

Hence, with a better understanding of WPI vs CPI, it is apparent that WPI and CPI both aid in measuring inflation and understanding economic health. Furthermore, the government uses these indexes to make decisions regarding subsidies, social security payments, tax brackets, and other government benefits. However, these indexes’ calculation, methodology, and coverage may vary depending on the country.