Wholesale Price Index (WPI) vs Consumer Price Index (CPI)

The two most-often used inflation rates in India are the year-on-year:

(1) Wholesale Price Index (WPI) based inflation rate and (2) Consumer Price Index (CPI) based inflation rate. The former is called the wholesale inflation rate and the latter is called the retail inflation rate.

Both WPI and CPI are price indices. In other words, these are two different baskets of goods and services. The government assigns different weights to different goods and services based on what is relevant for those two types of consumers.

While both baskets measure inflationary trends (the movement of price signals) within the broader economy, the two indices differ sharply in the manner in which weightages are assigned to food, fuel and manufactured items, as well as at the broken-down level of these segments.

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

The CPI-based inflation data is compiled by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (or MoSPI) whereas the WPI-based inflation data is put together by the Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (or DPIIT), Ministry of Commerce & Industry.

WPI is dominated by the prices of manufactured goods while the CPI is dominated by the prices of food articles. The weightage of food in CPI is far higher (46%) than in WPI (24%). As such, broadly speaking, if food prices go up sharply, it will bump up the retail inflation rate far more than it would spike the wholesale inflation rate. The reverse will happen when prices of manufactured products (such as TVs and cars) rise sharply.

WPI does not take into account the change in prices of services — say a haircut or a banking transaction. But CPI does. If services such as transport, education, recreation and amusement, personal care etc. get significantly costlier, then retail inflation will rise but there will be no impact on wholesale price inflation.

Wholesale inflation, measured by WPI, tracks year-on-year inflation at the producer or factory gate level, and is a marker for price movements in the purchase of bulk inputs by traders. CPI, on the other hand, captures changes in prices levels at the shop end, and is, thereby, reflective of the inflation experienced at the level of consumers.

In April 2014, the RBI had adopted the CPI as its key measure of inflation. Prior to this, the central bank had given more weightage to the WPI as the key measure of inflation for all policy purposes.

PRACTICE QUESTIONS

QUES . Consider the following statements: UPSC PRELIMS 2020

1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).

2. The WPI does not capture changes in the prices of services, which CPI does.

3. The Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 only

(c) 3 only

(d) 1, 2 and 3

Ans: (a)

QUES . Which of the following brings out the ‘Consumer Price Index Number for Industrial Workers’? UPSC 2015

(a) The Reserve Bank of India

(b) The Department of Economic Affairs

(c) The Labour Bureau

(d) The Department of Personnel and Training

Answer (c) EXPLANATION: The Labour Bureau is an attached office of the Ministry of Labour and Employment. They specifically monitor, compile and publish the CPI-IW on a monthly basis.

QUES . With reference to India, consider the following statements: UPSC PRELIMS 2010

1. The Wholesale Price Index (WPI) in India is available on a monthly basis only.

2. As compared to Consumer Price Index for Industrial Workers (CPI(IW)), the WPI gives less weight to food articles.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Ans: (c)

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