Difference Between Consumer Price Index (CPI) and Wholesale Price Index (WPI)

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).

While both indexes offer insights into the price changes of goods and services, they focus on different aspects of the economy and have distinct purposes. This guide provides a detailed explanation of WPI versus CPI.

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 commodities' prices 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.

Is WPI Weekly or Monthly?

Who Releases the Wholesale Price Index?

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 the 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.

Who Controls CPI?

Is CPI Weekly or Monthly?

What is the Most Common CPI Index?

The three most common CPI indexes are Rural, Urban, and Combined. In India, the most commonly referenced Consumer Price Index (CPI) is the CPI (Combined) or CPI (General), which tracks changes in the prices of a basket of goods and services consumed by households in both urban and rural areas.

This index is widely used to assess inflation and is published monthly by the Ministry of Statistics and Programme Implementation (MOSPI) in India.

What are the Four Principles of CPI?

Why Does India Choose CPI over WPI?

India places significant emphasis on managing inflation to ensure economic stability and the welfare of its citizens.

CPI provides a direct measure of inflation's impact on consumers by focusing on the change in the cost of living at the consumer’s end, making it more relevant for policy formulation aimed at maintaining price stability. Alternatively, WPI focuses on the inflation of the economy as a whole.

What is CPI, SPI, and WPI?

• CPI (Consumer Price Index): Consumer Price Index (CPI) is a measure of the average change in prices of goods and services consumed by households. It reflects the cost of living for consumers and is used to assess inflation from the perspective of the average consumer.
• SPI (Sensitive Price Index): SPI is a measure that assesses the price movement of essential commodities at short intervals (on a weekly basis) to review the country's price situation. It is designed to track price movements of basic necessities like food items, fuel, and utilities, which significantly impact the cost of living for poorer households.
• WPI (Wholesale Price Index): WPI measures changes in the prices of goods at the wholesale level before they reach the retail stage. WPI is important for assessing inflationary pressures at the production level and is often used by policymakers and businesses to monitor trends in input costs and production prices.

How Does RBI Calculate Inflation?

The Reserve Bank of India (RBI) calculates inflation primarily using the Consumer Price Index (CPI). CPI is calculated in India based on a basket of 299 commodities. The Consumer Price Index (CPI) is calculated by taking the average weighted value of each item in the basket and multiplying it by the change in retail prices of goods and services.

The Ministry of Statistics and Programme Implementation (MOSPI) computes the CPI for the entire country as well as for individual states.

CPI = (Cost of the market basket in a given year / Cost of the market basket in the base year) x 100

Inflation is then calculated as the percentage change in the CPI index over a specific period (usually month-on-month or year-on-year). This percentage change indicates the rate of inflation or deflation experienced by consumers.

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 the wholesale market before reaching the consumer market.
• CPI reflects price movements in the 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 both WPI and CPI 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, the calculation, methodology, and coverage of these indexes may vary depending on the country.