India calculates its inflation on two price indices, i.e., the Wholesale Price Index (WPI) and the Consumer Price Index (CPI). While the WPI-inflation is used at the macro-level policymaking, the CPI-inflation is used for micro-level analyses. The inflation at the WPI is the inflation of the economy.
Both the indices follow the ‘point-to-point’ method and may be shown in points (i.e., digits), as well as in percentage relative to a particular base year.
WPI:
• Based on 676 commodities
• Estimated by the Office of Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT).
• Measured on a monthly basis, but with a lag of 14 days.
• Base year is 2011-12.
|
Major Group/ Group
|
Weight
|
No. of items
|
| |
2004-05
|
2011-12
|
2004-05
|
2001-12
|
|
All Commodities
|
100.00
|
100.00
|
676
|
697
|
|
Primary Articles
|
20.12
|
22.62
|
102
|
117
|
|
Fuel & Power
|
14.91
|
13.15
|
19
|
16
|
|
Manufactured Products
|
64.97
|
64.23
|
555
|
564
|
· The advantage of the WPI is that it covers more goods. It is available with relatively small time lag of fortnight. It is convenient to compile.
· Disadvantages are that it does not include services, like transport, health, education, etc.
CPI
· CPI is released by the National Statistical Office (NSO).
. The base year of CPI is 2012.
What is the reason behind this divergence?
· There have been more than a few times when this gap in CPI and WPI has been witnessed. There is a host of reasons for it, which includes the difference in weightage assigned to different goods/items that make up the two baskets.
· For example, in the consumer’s basket, food has a much higher weightage than in the wholesale basket. This essentially means a rise in food prices will cause a bigger spike in the CPI basket, than in the WPI one.
· Similarly, manufactured goods are given more weightage in the wholesale basket. Therefore, any movement in the price of such items will move the WPI more than it does the CPI.
