What are the Differences Between the Wholesale Price Index and Consumer Price Index?
WPI and CPI are two metric measures widely used to determine the inflation of an economy or can be said it determines the price of goods and services in the economy. Both the terms WPI and CPI convey the same thing but are different. Also, when the inflation of an economy is considered, we aren't easily able to determine whether the inflation is due to WPI or CPI. Therefore, it is important to understand the difference between the two terms. Here, we will discuss the differences between WPI and CPI.
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What Is WPI?
WPI's full form, Wholesale Price Index, is one of the important macroeconomic indicators of inflation. It is generally used to calculate all the bulk transactions of goods in the domestic market. The WPI published by the Office of the Economic Adviser in the Department of Industrial Policy and Promotion, Ministry of Commerce & Industry, measures only change in the price of goods and goods included in WPI are manufactured products, fuel & power, and primary articles. The purpose of WPI is to examine the movement of the price that reflects the supply and demand in manufacturing, industry, and construction. WPI index is used to analyze both macroeconomics and microeconomics conditions.
The WPI inflation triggered down in the negative zone for the entire year of 2015 due to the weak global price of oil. Since 1945, the Wholesale Price Index has been regularly published.
What Is CPI?
CPI full form, Consumer Price Index, represents the change in the price of all goods and services purchased by the urban household for consumption. CPI captures spending patterns for each of the two population groups, namely all urban consumers and urban wage earners, and clerical workers. CPI does not capture the spending pattern for the people living in rural nonmetropolitan areas, those in farm households, people in the Armed Forces, and those in institutions, such as prisons and mental hospitals.
Goods and services included in the CPI are classified into eight major groups namely food and beverages, housing, apparel, medical care, transportation, education, recreation, and communication, and other goods and services.
Also, while calculating the CPI, users' fees (such as water and sewer prices) and sales and excise taxes paid by the consumers are also included whereas income tax and investment items like bonds, stocks, and life insurance are not included.
Types of CPI
CPI compiled and released at the national level on monthly basis is divided into four different types namely:
CPI for Industrial Workers
CPI for Agricultural Labourers
CPI for Rural Labourers
CPI for Urban Non-Manual Employee
The first three types of CPI are compiled by the Labour Bureau in the Ministry of Labour and Employment, whereas the fourth type of CPI is compiled by the Central Statistical Organisation in the Ministry of Statistics and Programme Implementation.
WPI and CPI
WPI and CPI are two different ways to measure inflation. The WPI full form, Wholesale Price index, represents the basket of wholesale goods (goods that are purchased by a business in large quantities directly from manufacturers to resell to the consumers). On the other hand, CPI's full form, Consumer Price Index, represents the basket of consumer goods and services and measures the change in the price of this basket over time.
Until 2014, WPI was widely used to measure inflation for policy purposes in India but it was further changed to CPI by Dr Raghuram Rajan, the then Governor of the Reserve Bank of India (RBI).
While the goods included in the WPI and CPI may be similar, the main difference between WPI and CPI is that WPI considers items sold in bulk between businesses whereas CPI captures retail items.
CPI V/S WPI: Tabular Form
Consumer Price Index | Wholesale Price Index |
CPI measures the overtime changes in the level of the retail price of goods and services that a reference population uses, acquires or pays for consumption. | WPI aims to track all possible transactions at the first point of bulk sale in the domestic market. |
CPI reflects the change in the price of both goods and services. | WPI reflects the change in the price of only goods. |
CPI is released weekly | WPI is released monthly. |
Only a few countries with a strong manufacturing background widely use the wholesale price index. | Consumer Price Index is widely used by several counties |
The office of Economic Advisor, Ministry of Commerce & Industry retains the responsibility to publish WPI. | CPI (Urban, Rural, All India) is released by the Central Statistics Office, Ministry of Statistics & Implementation. CPI for Agricultural and Rural Labour is a set of indices released by the Labour Bureau, Ministry of Bureau. |
WPI includes a total of 697 commodities | The total number of items in the CPI basket includes 448 in rural and 460 in urban. |
The data on the wholesale price index is available every week. | The data on the consumer price index is available every month. |
Inflation using CPI is measured at the final stage. | Inflation using WPI is measured at the first stage. |
Which Is Better Indicator of Inflation- CPI or WPI?
Conceptually, CPI-based inflation is more accurate than WPI based inflation as CPI works better at tracking marketing dynamics and arriving at a more realistic approach. Also, CPI is a set of measures used for estimation of price change of goods and services that directly affects the common man.
FAQs on Difference Between CPI And WPI
1. What are the different uses of WPI?
WPI meaning Wholesale Price Index, is an important measure to examine the dynamic movement of the price at the wholesale level. It is used for the following types:
It acts as a deflector of several macroeconomic variables including the GDP of a country.
The inflation based on WPI acts as an important determinant in the formulation of trade, fiscal, and other economic policies by the government.
WPI is often used for escalation clauses in the supply of machinery, raw material, and other construction-related work.
2. How does CPI differ from WPI?
The CPI differs from WPI in the sense that WPI is based on the value of domestic production, import, and wholesale price whereas CPI is based on the average expenditure reported in the items consumed by the given population and retail price.
3. For whom CPI is composed in India?
In India, the Consumer Price Index is composed of five different segments of the population namely agricultural workers, rural laborers, the urban population, and the rural population.
4. How is WPI data used?
WPI is an important economic indicator that is used by several organizations and individuals in industrial relation forums, creating wage policy and economic analysis. WPI is an important measure of inflationary pressure on wages and salary and is regarded as one of the preferred information sources while assessing monetary policy.
