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

Inflation is a crucial economic indicator that affects consumers' purchasing power. Therefore, to understand how inflation impacts India’s economy, you must first understand the difference between consumer price index and wholesale price index. In this blog, we will break down what is the main difference between WPI and CPI, how their baskets differ, and why both are necessary. 

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What Does the Wholesale Price Index Mean?

To understand the difference between consumer price index and wholesale price index, you must know what they are. The Wholesale Price Index, or WPI, is an important index measuring the inflation rate in a country. It measures the average price level of goods sold in the wholesale markets. It reflects the price fluctuations businesses and producers experience rather than final consumers. The Office of Economic Adviser publishes the indicator, the most widely used indicator in India.

Key Features of WPI

Some of the key features of WPI are as follows:

1. Instead of focusing on what consumers pay, WPI considers the prices at which goods are sold in bulk from manufacturers to wholesalers and retailers.
2. WPI only includes goods like food, fuel and other manufactured products. It does not take into account services like healthcare.
3. WPI helps in understanding inflationary pressure and trends at the producer level. Hence, prices are tracked before they impact actual consumers.
4. It does not directly reflect how inflation affects the final consumers.

How is WPI Calculated?

WPI is determined by tracking the price changes of a basket of goods, such as food grains. Each item in the basket is assigned a particular weightage based on its importance in wholesale trade.

WPI is calculated monthly, with a base value of 100 for a set period. Any price fluctuations during the upcoming months determine the new base value. To calculate WPI, we must consider three major components: primary articles, manufactured goods, fuel and power. 

WPI formula is: 

WPI = (Current Price/Base Price)* 100. 

What Does the Consumer Price Index Mean?

The Consumer Price Index (CPI) calculates changes in the prices of goods and services for final consumers. Thus, it measures price changes from the perspective of a consumer or a retail buyer. It is a significant indicator of changes in the cost of living and also helps in policy making related to inflation. The National Statistical Office (NSO) compiles, calculates, and releases CPI data. 

Key Features of CPI

The following are the key features of the Consumer Price Index:

1. It reflects price changes as experienced by the final consumers.
2. A broad range of goods and services, including food, clothing, healthcare, education, and transportation, are included in calculating CPI.
3. It is a major determining factor in changes to wages, pensions, and other monetary policies. 

How is CPI Calculated?

CPI is calculated by tracking the price changes of a basket of consumer goods and services. This index tracks this change by comparing the price in a given year with the prices that were prevalent during the same period in the previous year. 

The formula for calculating CPI is:

CPI = (Cost of the market basket in a given year/cost of the market basket in the base year)* 100. 

Key Differences Between Wholesale and Consumer Price Index

The table below explains the difference between the Consumer Price Index and Wholesale Price Index: 

Why are CPI and WPI Necessary Indicators?

Both CPI and WPI are necessary because of the following reasons: 

• WPI helps track changes in producer-level inflation, which may influence future retail prices.
• CPI helps measure inflation, which directly affects consumers. 
• Together, they provide a comprehensive picture of inflation trends in the country, which helps governments make policy decisions and changes.

Latest Trends in WPI and CPI

The following are the latest trends in Wholesale Price Index and Consumer Price Index:

• Wholesale Price Index: The annual rate of inflation for all commodities is 2.38% (provisional) for February 2025, and the index number for the same month is 154.8 (provisional). This rate of inflation is mainly due to the increase in prices of food products, food articles, and other manufacturing and non-food products.
• Consumer Price Index: In January 2025, the CPI saw a significant decline in food inflation in rural areas. Similarly, headline inflation saw a sharp decline in urban areas. 

Final Thoughts

Understanding the difference between Consumer Price Index and Wholesale Price Index is crucial to grasping how inflation affects India’s economy. By analysing these indices, policymakers are able to frame policies and measures that keep inflation in check. 

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