We always talk about the increasing price of goods and services these days, that are necessary for us to live. A term which describes this increase in price is called as ‘Inflation’. The rate at which the price of goods and services increases over a particular period of time (normally an year) is termed as ‘Inflation Rate’. Now the next question is how this inflation rate is calculated in an economy. Although there are various methods to calculate inflation rate which includes Consumer price index (CPI), Wholesale price index (WPI), Cost of living index, Producer price index (PPI), Capital goods price index and Commodity price index and GDP Deflator, but most of the major developed economies use WPI and CPI as their official barometer to weigh their inflation. WPI and CPI are two of the major indices that decide and set the price of goods in the market. These tools also keep the track of changing prices.
What Is Wholesale Price Index (WPI)?
Wholesale Price Index (WPI) is a price index which represents the wholesale price of a basket of goods over time. In simple words, WPI is an indicator of price changes in the wholesale market. WPI measures the changes in the prices charged by manufacturers and wholesalers. WPI measure the changes in commodity prices at selected stages before goods reach to the retail level. The prices may be those charged by manufacturers to wholesalers or by wholesalers to retailers or by some combination of these and other distributors. In several countries such as India, it is used to measure the inflation and the change in the average price level of goods traded in wholesale market. It is released on a weekly basis to measure the change in the wholesale price of a set of goods. The WPI is based on the price of 435 commodities in India, which is an indicator of movement in price of commodities in all trade and transactions.
What Is Consumer Price Index (CPI)?
Consumer Price Index (CPI) is a price index which represents the average price of a basket of goods over time. In simple words, CPI is based on changes in price at the retail level. CPI measures the average price of goods and services that the consumers have paid for. Education, apparel, foods and beverages, communication, transportation, recreation, housing and medical care are the 8 groups for which the CPI is set. Some services like school and government registration fees and electricity and water bills are also included sometimes. It is also referred to as standard retail price (SRP).
Difference Between WPI And CPI
- Wholesale price index measures inflation at each stage of production while Consumer price index measures inflation only at final stage of production.
- Wholesale price index is the basis for the economic deflation rate while consumer price index is the basis for the inflation rate.
- Wholesale price index is the middle point of the sum of all the goods bought by the traders whereas consumer price index is the middle point of the sum of all the goods bought by consumers.
- The WPI is compiled and published by Office of the Economic Advisor on a weekly basis while the CPI is compiled and published by the Labour Bureau on a monthly basis in India.
- Wholesale Price Index (WPI) is based on the price prevailing in the wholesale markets or the price at which bulk transactions are made. The Consumer Price Index (CPI) is based on the final prices of goods at the retail level.
- There are only few countries that us WPI to calculate inflation rates whereas many nations have already shifted to using CPI.
- WPI is said to result an erroneous measure while CPI will describe actual cost of living and inflation rate more accurately.
- There are a lot of insignificant goods that are considered in WPI. CPI, on the other hand, has well-selected variables.
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