WPI And CPI Introduction
Historically, there are two price indices, the Wholesale Price Index and the Retail Price Index that plays a significant role in setting the price of goods and services and inflation in the economy. The Wholesale Price Index or WPI is the price of a representative basket of goods and services whereas the Consumer Price Index or CPI is a measure used for estimation of price change in a basket of goods and services representative of consumer expenditure in an economy. The CPI is based on the retail price and this index is basically used to calculate the Dearness Allowance for Government Employees.
Over the past few years, WPI was used in India to measure inflation. When Raghuram Rajan was appointed as a Governor at RBI, he started using CPI to measure inflation as according to him inflation should be measured based on the rise in the price of a bucket of inflationary items that directly affects the common man. According to Raghuram Rajan, inflation measured using CPI is better than WPI. But experts of this view argue that WPI is more important as it measures the change in the price of the commodities that affect the manufacturing sector or industry. Read on to know more about the difference between WPI and CPI.
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What Is WPI?
WPI, an abbreviation of Wholesale Price Index, is a price index representing the price of a representative commodity basket of 697 items at wholesale level i.e goods that are traded in bulk and between organizations, not the end consumers. In various countries such as India, it is used to measure inflation, the general rise in the price of goods. As the name suggests, the WPI does not consider the price at which consumers buy the goods but on a wholesale basis. The reason for having WPI is to know the demand and supply situation of goods in the economy. The main components of the wholesale price index are the Primary Article, Manufactured Products, Fuel and Power in the decreasing order of weight-age to stated elements. The WPI index is helpful in analyzing both macroeconomics and microeconomics conditions.
The WPI is calculated on the basis of the quotation of different items received at regular intervals of time. While calculating WPI, the items that should be considered are based on the market study, demand, supply, consumer behaviour, etc. In India, since January 1942, the year when WPI was introduced, a number of constructive changes have been made in the series.
What is CPI?
CPI, also known as Consumer Price Index, records the change in the retail price of goods and services which are purchased by the households for their daily consumption.
While calculating inflation, it is evaluated to what extent CPI has increased in terms of percentage change for the previous year over the same period. If the price has fallen, the situation is considered deflation.
The CPI examines price at a certain level for specific commodities i.e. price variations of both goods and services at urban, rural, and all-India levels. The change in price index over the period of time is referred to as CPI inflation or retail inflation.
The CPI enables us to understand the true value of salaries, pensions, pensions, the purchasing power of the nation’s currency, and regulating rates. CPI is observed as one of the most significant statistics to determine economic health and is usually based on the weighted average of the prices of commodities. It generally gives an idea of the cost of the standard of living of consumers.
In other words, CPI usually recognizes periods of inflation or deflation for consumers in their regular living expenses. The CPI will rise over a period of time during inflation whereas it will drop during deflation.
Difference Between CPI And WPI: A Summary
Here are some important points on WPI V/S CPI
Wholesale Price Index | Consumer Price Index |
WPI is used to measure the average change in the price of goods that are sold in bulk quantity at the wholesale level. | It measures the change in the price in the sale of goods and services in retail or directly to the consumers. |
It is published by the Office of Economic Advisor ( Ministry of Commerce & Industry) | It is published by the Central Statistical Office (Ministry of Statistics & Programme Implementation). |
The number of items included in the WPI is 697. | The number of items included in the CPI basket is 448 in rural and 460 in urban. |
The WPI index is used only for food | The CPI index is used for both goods and services |
Inflation is measured in WPI at the first stage | Inflation is measured in CPT at the last stage. |
Price is borne by both manufacturer and retailer | Price is borne by the consumers |
It releases on a weekly basis for primary articles, fuel & power, and for the rest of the item, the price is released on a monthly basis. | It releases on a monthly basis |
It covers primary articles, fuel & power, and manufacturing products. | It includes eight important components of goods and services. |
It is used by few countries | It is used by 157 countries |
It released prices on a weekly basis for primary articles, fuel, and power and for the rest of the items it publishes monthly. | It releases prices on a monthly basis. |
The base year is Financial Year | The base year is a calendar year |
WPI is important for those who keep track of wholesale prices. | CPI is important for the general public |
FAQs on Difference Between Wholesale Price Index and Consumer Price Index
What are WPI and CPI?
Answer: The CPI or Consumer Price Index observe the basket of consumer goods and services and measures the change in the price of this basket over the period of years whereas the WPI observe the basket of wholesale goods (i.e. the goods that are purchased in bulk quantity by the business directly from manufacturers with an aim of reselling it to the consumers).
What does the wholesale price index measure?
Answer: The wholesale price index measures the change in the price of goods that are sold and traded in bulk quantity from wholesalers to other businesses. In simple terms, the wholesale price index tracks prices at the factory gate before reaching the retail level.
What are the main components of WPI?
Answer: The main components of WPI are primary articles, which are further subdivided into Food articles, and Non - Food Articles. Food articles include cereals, wheat, paddy, vegetables, fruits, meat & fish, milk, egg, etc, whereas non-food articles include minerals, oilseeds, and petroleum. The next basket in WPI is Fuel & Petroleum which tracks price movement in petrol, diesel, and LPG. The biggest basket included in the WPI is manufactured goods such as paper, chemicals, plastic, cement, metals, and more. Manufacture goods also include manufactured food products such as tobacco products, sugar, vitamins and animal oils, and fats.
What are the main components of CPI?
Answer: The goods and services in the CPI basket are divided into 8 major components as Food, Shelter, Clothing & Footwear, Health & Personal Care, Recreational, Alcoholic Beverages, Education & Reading, Tobacco Products, and Recreational Cannabis.
What are the four consumer price index numbers?
Answer: The four consumer price index numbers are:
CPI For Industrial Workers (IW)
CPI For Agricultural Labourers (AL)
CPI For Rural Labourers (RL)
CPI For Urban Non - Manual Employees (UNME)
Who publishes Consumer Price Index numbers?
Answer: The components such as CPI (IW), CPI (AL), CPI (RL) are compiled and released by the Labour Bureau in the Ministry of Labour, whereas the CPI (UNME) is released by the Central Statistical Organisation in the Ministry of Statistics and Programme Implementation.
