An Introduction to CPI and WPI
In India, CPI and WPI are used to measure inflation at different levels. CPI stands for Consumer Price Index, whereas WPI stands for the Wholesale Price Index.
CPI measures the change in the general level of retail prices of selected goods and services that households purchase only for consumption. However, WPI measures the average change in the wholesale price of products in the economy.
To understand it better, we can analyze the movement of goods or the supply chain. Goods are first produced at a factory, supplied to a wholesale point, and then come to retail stores.
Therefore, the price fluctuation of goods can be evaluated at two points; one at the wholesale end and another at the retail location.
WPI – features
WPI or the Wholesale Price Index catches price fluctuation of goods at the wholesale points. So, it measures inflation at the first stage of the supply chain.
WPI data is published by the office of the economic advisor, Department for the Promotion of Industry, and Internal trade. It catches the price fluctuation of goods only. It does not register inflation of services.
WPI Index weights 22.62% for primary articles. It includes food articles, cereals, paddy, wheat, pulses, vegetables, milk, egg, meat, oilseeds, minerals, crude oil, etc.
Fuel and Power weight of 13.15% in the index. It includes LPG, petrol, and high-speed diesel.
WPI Index weights 64.23% manufactured products. It includes the manufacture of food products, sugar, tobacco products, chemicals, rubber, plastics, etc.
WPI tracks the price of 697 items in total, including primary articles, fuel & power, and manufactured products.
Another interesting thing with WPI is that it is calculated based on the financial year, and its base year is 2011-12, with a base price of 100.
Let’s see a sample of the WPI report for March 2020. I would recommend downloading the WPI data for a detailed analysis. To download, click the button below.
Let’s analyze – WPI data.
As you know, it’s base year was 2011-12, with a base value of 100. We are in the financial year of 2019-20, and the current year’s value is 229.3.
To cite an example, in eight years, the price of onion as grown 129.3% at the wholesale point.
In the same way, if you calculate the price of crude petroleum, you can see deflation. It has lost 30.4% of its value over the last eight years.
NOTE: Deflation is the decrease in the general level of prices of goods and services in an economy. It’s just the opposite of inflation.
You can observe the price fluctuation of other items due to inflation or deflation over eight years in the above PDF. You can also compare the price fluctuation year to year basis.
CPI – features
CPI or Consumer Price Index tracks the price fluctuations at the retail level. It measures the goods and services, i.e., food, education, transport, communication, recreation, and medical care, etc. unlike WPI, which measures the price of goods only.
One interesting thing to notice in the CPI index is that it measures retail price fluctuations at three different points, i.e., rural, urban, and combined. For instance, it tracks 448 items in rural and 460 articles in urban areas.
The Central Statistic Office publishes the CPI report under the Ministry of Statistic and Programme Implementation every month. But the catch is that it takes into account the calendar year, unlike WPI, that is calculated on a financial year basis.
Its base year is 2012, with a base value of 100.
Let’s see a sample of the CPI report for March 2020. I would recommend downloading the CPI data for a detailed analysis. To download, click the button below.
Let’s analyze – CPI data.
As you can see, in the indices column, there are two indices. One is CPI (general), and the other is CFPI (Consumer Food Price Index).
But we will take CPI (general) for our discussion as it is a broader index than CFPI that tracks only food items at the retail level.
You can see that the data for March 2020 is provisional only. Therefore, it is better to take February 2020 data that is final.
The combined (Rural + Urban) inflation Feb 2020 is at 6.58%. That means those items that CPI tracks at the retail level have become 6.58% dearer than Feb 2019.
And the same is valid with the combined inflation report of March 2019. As you can see, it is at 2.86%, which means the inflation was only 2.86% during the period (Mar 2018-Mar2019).
You will also observe that the CPI (general) index value is 150.4 for rural, but it is 147.7 for urban. That means the rural areas of India have more pain in the name of inflation than the urban.
Simultaneously, the combined inflation is at 149.1%, which is more accurate for general reference. It means over eight years; the inflation has risen 49.1% (the base year 2012 with a base value of 100).
NOTE: You should take all-India combined CPI (general) report as standard for general reference.
CPI and WPI – sum up
Among CPI and WPI, CPI is more popular than WPI as it tracks the price fluctuation at the retail level or the final level. On the other hand, the government uses WPI to formulate trade, fiscal, and other economic policies. Therefore, both indices play an essential role in the economy of India.
I hope you liked the post. Then, don’t forget to share it with your loved ones. Further, I would also like to hear from you.