Inflation is the rate of increases in the prices of goods and services over some time that we use daily. It is the general and sustained rise in the overall price of goods and services. More specifically, it is the overall increase in the cost of living in a country. Just for example, for certain goods like clothes or services like hair styling, irrespective of the context, inflation indicates how expensive the relative basket of goods and services has become over some time, say one year. There are two measures of calculating inflation wholesale price index and consumer price index. CPI and WPI. Let us understand what that means.
Consumer Price Index (CPI):
The reference population’s or households’ retail prices for goods and services that they purchase, use and consume are tracked by the consumer price index. CPI is also known as the cost of living index. It calculates how frequently the retail prices of a set of commonly used commodities fluctuate on average.
Suppose the CPI for industrial Workers in 2010 is 100 and in December 2021 is 314. This implies that in 2010, the consumer was able to get a basket of goods at ₹100, for which he had to pay ₹134 in 2021, which indicates how expensive the goods have become over time.
At present, this index is now being prepared with a base year of 2012, which is 100 further, if you want to know how much the price of a particular commodity has increased over time, then you can use this formula to calculate the changes.
CPI = Cost of the market basket in the current year  * 100 / Cost of the market basket in the base year
Weight distribution for different series of CPI-IW (2016):
Now we will look into the group-wise weight distribution for different series of the Consumer Price Index for Industrial Workers (CPI-IW). This data was released in the year 2016 where food and beverages are given 39.17% weight, plant tobacco and intoxicants are given 2.07% weight, fuel and light is given 5.5% weight, housing is given 16.87% weight, clothing and footwear is given 6.08% weight and miscellaneous is given 30.31% weight.
Here, groups like food and beverages and miscellaneous are further subdivided; additionally, the words are derived based on the average family expenditure.
Wholesale Price Index (WPI):
Wholesale Price Index (WPI) is a measure that monitors the changes in the prices of goods, including intermediate goods, at wholesale labels. It indicates the overall changes in the general price label. It doesn’t cover items relating to services such as courier services, repair, coaching services, etc.
In other words, the wholesale price index is a measure of average changes in the prices of commodities for wholesale or bulk sale at the early stages of the transaction, which gives a clear idea of recent economic trends.
Weight distribution for different series of WPI:
Now we will look into the group-wise weight distribution for different series of WPI. This data is released by the office of the economic advisor department for the promotion of industry and internal trade. With a two-week delay from the reference month, it is released on the 14th of each month or the next working day.
Here, primary articles are allotted a weight of 22.62%, which includes food articles, non-food articles, minerals, crude petroleum, and natural gas. Fuel and petrol are allotted a weight of 13.15%, which includes electricity, mineral oil, and coal. Last are manufactured items, which are given 64.23% weight; it includes manufacturers of basic metal, chemicals and chemical products, electrical equipment, rubber and plastic products and textiles, dairy products, bakery products, etc.
As we know, the WPI tracks changes in the prices of goods that wholesale businesses sell and trade in large quantities with other businesses.
Example of WPI:
Let us think this way: suppose we go to a department store to buy some goods. The retailer buys those goods from the wholesaler, and the wholesaler buys the same goods from a manufacturer, and the manufacturer buys raw material from the farmer and in this way, the flow is continuous. Now, if the consumer went to buy 1 kg of sugar, which cost ₹60/kg. The retailer has brought the sugar as ₹52/kg from the wholesaler. But at the same time, the retailer has ordered 100 kg of sugar, which is why he has got the sugar at this reduced price.
So we can say that sugar at the rate of ₹60/kg is the price prevalent in the market for consumers, whereas for retailers the price of sugar is ₹52/kg. In the same way, two prices for various goods exist in the market, one at the consumer level and the other at the wholesale level. At several levels, the government monitors changes in the cost of products and services. Thereafter, the consumer price and the wholesale price of a basket are observed, which consists of all necessary items that are used daily. In this way, the consumer price index and wholesale price index are calculated.
Difference between CPI and WPI
| Serial Number | Consumer Price Index (CPI) | Wholesale Price Index (WPI) |
| 1 | CPI indicates the average in the prices of sets of goods at the retail level. | WPI is the average change in wholesale pricing for a given collection of items. |
| 2 | CPI includes changes in the prices of both essential goods and services in the imaginary basket of goods. | WPI covers changes in the prices of only goods in the imaginary basket of goods. |
| 3 | On the contrary, data related to the consumer price index is published by the National Statistics Office (NSO), which works under the Ministry of Statistics on program implementation. | The data relating to the wholesale price index is published by the Office of the Economic Advisor, which works under the Ministry of Commerce and Industry. |
| 4 | Data related to CPI is related to every month. | Data related to WPI is released every week. |
| 5 | In CPI, the government keeps track of the price of goods purchased by the consumer. | In WPI, the government keeps track of the prices of goods traded between business houses. |
| 6 | In CPI, inflation is measured by keeping an eye on the price paid at the final stage of the transaction. | In WPI, inflation is measured by keeping an eye on the price paid at the first stage of the transaction. |
| 7 | The base year in the case of CPI is 2012, which is a calendar year. | The base year in the case of WPI is 2011-12, which is a financial year. |
| 8 | Food goods are given more weight in the CPI calculation. | Manufactured goods are given more weight in WPI. |
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