To measure the extent of inflation, analysts use the Consumer Price Index (CPI) and Wholesale Price Index (WPI). Understanding CPI and WPI is essential for policymakers, investors, as they offer distinct perspectives on inflation dynamics and their implications. In this blog post, we cover everything you need to understand about CPI and WPI.
Meaning of CPI and WPI:
Consumer Price Index (CPI)
The Consumer Price Index (CPI) is a tool for measuring price fluctuations from the viewpoint of retail consumers in India. It is published by the National Statistical Office (NSO). It tracks changes in the prices of goods and services commonly purchased by Indian consumers, ranging from food and medical care to electronics and education.
The CPI includes diverse categories, providing a comprehensive overview of inflationary patterns across various sectors.
India utilizes four main types of CPI:
- CPI for Industrial Workers (IW)– By Labour Bureau, Ministry of Labour
- CPI for Agricultural Labourer (AL)– By Labour Bureau, Ministry of Labour
- CPI for Rural Labourer (RL)– By Labour Bureau, Ministry of Labour
- CPI (Rural/Urban/Combined)– NSO
Labour Bureau under the Ministry of Labour and Employment compile
Labour Bureau under the Ministry of Labour and Employment compile CPI IW, AL and RL. NSO Compile CPI (Urban/Rural/Combined).
The base year for CPI calculations is 2012, but a recent update introduced a new series of CPI for Industrial Workers with a base year of 2016.
The CPI data plays a crucial role in the decision-making process of the Monetary Policy Committee (MPC), which aims to regulate inflation.
The Reserve Bank of India (RBI) officially adopted the CPI as its primary inflation measure, emphasizing its significance in formulating monetary policies to uphold price stability.
Wholesale Price Index (WPI)
The Wholesale Price Index (WPI) is a metric that tracks price variations of goods sold and exchanged in large quantities by wholesale enterprises. Office of Economic Adviser under the Ministry of Commerce and Industry releases WPI, as the predominant inflation gauge in India.
A significant critique of the WPI is that it does not reflect the purchasing behavior of the general populace. It measures prices at the wholesale level rather than at retail points.
In 2017, authorities updated the base year for the All-India WPI from 2004-05 to 2011-12. This was done to ensure relevancy and accuracy in reflecting contemporary economic dynamics.
Difference Between CPI and WPI
Read about inflation for UPSC from here.