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All You Need To Know About CPI and WPI?

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All You Need To Know About CPI and WPI?
Rajat Mishra - 16 July 2019

Consumer Price Index (CPI) has risen from 3.05 per cent in May to 3.18 per cent in June. Data released by the Central Statistics Office shows that the corresponding provisional inflation rate for rural area was 2.21 per cent and urban area was 4.33 per cent in June 2019, as against 1.86 per cent and 4.51 per cent in May 2019.

However, Wholesale Price Index (WPI) has come down for the second consecutive month to 2.02 per cent in June. The current level is 23 months low.

The CPI and WPI are the terms that everyone comes across quite often and it leaves them quite confused about what exactly they stand for.

So, let us have a quick look at what the CPI and WPI are?

WPI is the price of representative basket of wholesale goods. While the CPI is a comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure in an economy. The CPI is based on retail prices and this index is used to calculate the Dearness Allowance (DA) for government employees.

The change in index over a period of time is called as CPI inflation. CPI figures are released by the Central Statistics Office (CSO), Ministry of Statistics and Program Implementation. This time the data released by the CSO shows that retail inflation has stayed below the RBI’s medium term target of four per cent for the 11th straight month and has opened up the possibility of more rate cuts.

What Are The Changes Introduced In The Past?

For past many years, India used WPI to measure the inflation. When Raghuram Rajan was at the helm at the RBI, he started using CPI to measure the inflation. According to Raghuram Rajan: “Inflation should be measured based on the rise in the price of a basket of inflationary items that directly affects the common man. CPI-based inflation captures this better than WPI-based inflation.” But critics of this view argue that WPI is more important since this is the basket that affects the manufacturing sector or industry.

In India there are four consumer price index numbers such as CPI for industrial workers, CPI for Agricultural labourers, CPI for rural labourers and CPI for Urban Non-Manual Employees.

There are only few countries that use WPI while more than 150 countries use CPI as an indicator of price change.

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