WPI And CPI Introduction
Historically, there are two price indices, the Wholesale Price Index and the Retail Price Index that plays a significant role in setting the price of goods and services and inflation in the economy. The Wholesale Price Index or WPI is the price of a representative basket of goods and services whereas the Consumer Price Index or CPI is a measure used for estimation of price change in a basket of goods and services representative of consumer expenditure in an economy. The CPI is based on the retail price and this index is basically used to calculate the Dearness Allowance for Government Employees.
Over the past few years, WPI was used in India to measure inflation. When Raghuram Rajan was appointed as a Governor at RBI, he started using CPI to measure inflation as according to him inflation should be measured based on the rise in the price of a bucket of inflationary items that directly affects the common man. According to Raghuram Rajan, inflation measured using CPI is better than WPI. But experts of this view argue that WPI is more important as it measures the change in the price of the commodities that affect the manufacturing sector or industry. Read on to know more about the difference between WPI and CPI.
(Image Will Be Updated Soon)
What Is WPI?
WPI, an abbreviation of Wholesale Price Index, is a price index representing the price of a representative commodity basket of 697 items at wholesale level i.e goods that are traded in bulk and between organizations, not the end consumers. In various countries such as India, it is used to measure inflation, the general rise in the price of goods. As the name suggests, the WPI does not consider the price at which consumers buy the goods but on a wholesale basis. The reason for having WPI is to know the demand and supply situation of goods in the economy. The main components of the wholesale price index are the Primary Article, Manufactured Products, Fuel and Power in the decreasing order of weight-age to stated elements. The WPI index is helpful in analyzing both macroeconomics and microeconomics conditions.
The WPI is calculated on the basis of the quotation of different items received at regular intervals of time. While calculating WPI, the items that should be considered are based on the market study, demand, supply, consumer behaviour, etc. In India, since January 1942, the year when WPI was introduced, a number of constructive changes have been made in the series.
What is CPI?
CPI, also known as Consumer Price Index, records the change in the retail price of goods and services which are purchased by the households for their daily consumption.
While calculating inflation, it is evaluated to what extent CPI has increased in terms of percentage change for the previous year over the same period. If the price has fallen, the situation is considered deflation.
The CPI examines price at a certain level for specific commodities i.e. price variations of both goods and services at urban, rural, and all-India levels. The change in price index over the period of time is referred to as CPI inflation or retail inflation.
The CPI enables us to understand the true value of salaries, pensions, pensions, the purchasing power of the nation’s currency, and regulating rates. CPI is observed as one of the most significant statistics to determine economic health and is usually based on the weighted average of the prices of commodities. It generally gives an idea of the cost of the standard of living of consumers.
In other words, CPI usually recognizes periods of inflation or deflation for consumers in their regular living expenses. The CPI will rise over a period of time during inflation whereas it will drop during deflation.
Difference Between CPI And WPI: A Summary
Here are some important points on WPI V/S CPI
Wholesale Price Index | Consumer Price Index |
WPI is used to measure the average change in the price of goods that are sold in bulk quantity at the wholesale level. | It measures the change in the price in the sale of goods and services in retail or directly to the consumers. |
It is published by the Office of Economic Advisor ( Ministry of Commerce & Industry) | It is published by the Central Statistical Office (Ministry of Statistics & Programme Implementation). |
The number of items included in the WPI is 697. | The number of items included in the CPI basket is 448 in rural and 460 in urban. |
The WPI index is used only for food | The CPI index is used for both goods and services |
Inflation is measured in WPI at the first stage | Inflation is measured in CPT at the last stage. |
Price is borne by both manufacturer and retailer | Price is borne by the consumers |
It releases on a weekly basis for primary articles, fuel & power, and for the rest of the item, the price is released on a monthly basis. | It releases on a monthly basis |
It covers primary articles, fuel & power, and manufacturing products. | It includes eight important components of goods and services. |
It is used by few countries | It is used by 157 countries |
It released prices on a weekly basis for primary articles, fuel, and power and for the rest of the items it publishes monthly. | It releases prices on a monthly basis. |
The base year is Financial Year | The base year is a calendar year |
WPI is important for those who keep track of wholesale prices. | CPI is important for the general public |
FAQs on Difference Between Wholesale Price Index and Consumer Price Index
1. What is the main difference between the Wholesale Price Index (WPI) and the Consumer Price Index (CPI)?
The primary difference lies in the stage of transaction and the items covered. The Wholesale Price Index (WPI) measures inflation at the wholesale level, tracking the prices of goods sold in bulk by wholesalers to businesses. In contrast, the Consumer Price Index (CPI) measures price changes at the retail level, reflecting the prices consumers pay for a basket of goods and services. A key distinction is that WPI only includes goods, while CPI includes both goods and services like education, health, and recreation. You can explore this further in our guide on Important Index Numbers.
2. What are the major components included in the WPI basket in India?
The WPI basket is broadly divided into three major groups, each with a different weightage:
- Primary Articles: This includes food articles (like cereals, vegetables) and non-food articles (like minerals, crude petroleum).
- Fuel and Power: This category tracks price movements in petrol, diesel, and LPG.
- Manufactured Products: This is the largest component, covering a vast range of items from textiles and chemicals to metals and cement.
3. What types of goods and services are covered under the CPI?
The CPI basket is designed to reflect the consumption patterns of an average household. Its major components include:
- Food and Beverages
- Housing (rent)
- Clothing and Footwear
- Fuel and Light
- Pan, Tobacco, and Intoxicants
- Miscellaneous services like education, medical care, transport, and recreation.
4. What is the current base year for calculating WPI and CPI in India?
For accurate comparison of price levels over time, both indices use a base year. As of the 2025-26 academic session, the base year for the Wholesale Price Index (WPI) is 2011-12. The base year for the Consumer Price Index (CPI) is 2012.
5. How do changes in the WPI eventually impact the CPI?
Changes in WPI are often a leading indicator for CPI. When the cost of raw materials and wholesale goods (measured by WPI) increases, producers face higher input costs. These costs are eventually passed on to the final consumer in the form of higher retail prices, which then reflects as an increase in the CPI. This transmission usually occurs with a time lag of a few weeks to months.
6. Why is CPI considered a more accurate measure of retail inflation than WPI?
CPI is considered a better indicator of retail inflation because it directly measures the price changes of goods and services that households actually consume, thus reflecting the true cost of living. WPI, on the other hand, does not include services (like transport, education, and healthcare), which form a significant portion of a consumer's budget. Therefore, CPI provides a more realistic picture of the inflation that affects the common person.
7. How does the Producer Price Index (PPI) differ from the WPI?
While both measure price changes before the retail stage, the Producer Price Index (PPI) tracks the average change in selling prices from the producer's perspective, excluding any indirect taxes. The WPI, however, measures prices at the wholesale level, which may include trade margins and some taxes. Many economists argue that PPI gives a cleaner signal of producer-side inflation.
8. Who is responsible for publishing WPI and CPI data in India?
The data for these two indices are published by different government bodies. The WPI data is compiled and released by the Office of the Economic Adviser in the Ministry of Commerce and Industry. The CPI data is released by the National Statistical Office (NSO), under the Ministry of Statistics and Programme Implementation. Both are typically released on a monthly basis.
9. Why is understanding the difference between WPI and CPI important for a Class 11 Economics student?
This topic is fundamental to understanding how inflation is measured and managed in an economy. As per the CBSE Class 11 Economics syllabus, it helps students analyse economic policies, understand how price changes at the producer level affect consumer budgets, and appreciate why the government uses different indices to track the country's economic health. It forms the basis for more advanced macroeconomic concepts.
