Which of the following statements is/are incorrect about Wholesale Price Index (WPI) and the Consumer Price Index (CPI)?

1. Both follow the same base year, 2011-12.

2. CPI is released by the Office of Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT).

3. In consumer’s basket, food has a much less weightage than in the wholesale basket.

Select the correct answer using the code given below:

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.

· 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.