Difference between Consumer Price Index CPI and Wholesale Price Index WPI

In this method, a set of 435 commodities and their price changes are used for the calculation. The selected commodities are supposed to represent various strata of the economy and are supposed to give a comprehensive WPI value for the economy. The CPI is based on the weighted average retail prices of eight categories of goods and services. Education, garments, communication, transportation, and medical care.

These are derived from data gathered from sample household expenditure surveys. When these are combined, they represent the overall CPI of an economy. An index is a useful tool for tracking price changes, especially those related to food and clothing. In other words, if you look at the index, you can tell how much everything has increased in price.

Everyday Economics: What are WPI and CPI inflation rates?

Even as the WPI is used as a key measure of inflation in some economies, the RBI no longer uses it for policy purposes, including setting repo rates. The central bank currently uses CPI or retail inflation as a key measure of inflation to set the monetary and credit policy. Generally, the WPI consists of industrial and agricultural goods. If the index is rising at a slower rate than expected, prices have fallen.

• Of the above three methods, the arithmetic conversion method is the simplest and operationally, the most convenient one.
• Education, garments, communication, transportation, and medical care.
• Even though it has taken a back seat in recent years after the RBI decided to focus more on CPI, the concept is still a significant model for evaluating economic growth and reflecting on economic trends.
• Until about 2016, the index based on the DoCA data followed the CPI very closely.

That’s because a kg of onion is Rs 5 — that is, 50% — more than the base price in this example. For every month, inflation rates are calculated both on a year-on-year basis — how prices have changed over the past year — as well as on a month-on-month basis — how prices have changed over the past month. Commoditytraders, WPI also helps government to understand five principles of lean inflation level at various stages. Wholesale prices affect retail prices, which has an impact on household finances. Excessive inflation in wholesale prices will reflect in retail prices and it can be damaging for the economy. WPI helps the government take timely action against inflation, especially inflation in prices of essential commodities.

WPI: Wholesale Price Index

The wholesale Price Index assists in measuring the price change incurred on the bulk sales of items. However, the Consumer Price Index measures the variations in the general price of a particular group of consumer products. The lag in publishing these can be costly since market interventions and decisions around price regulations sometimes demand more timely action. Two recent cases in point are the Covid-19 induced lockdown which led to an immediate surge in food prices, and the recent increase in prices resulting from the ongoing war between Russia and Ukraine. Public policy discourse, and policymaking in general, thus, can benefit from having a high frequency index where such data is readily available.

• Two recent cases in point are the Covid-19 induced lockdown which led to an immediate surge in food prices, and the recent increase in prices resulting from the ongoing war between Russia and Ukraine.
• The index is only a conditional cost-of-living measure and does not account for social or environmental factors.
• In other words, if you look at the index, you can tell how much everything has increased in price.
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• Then, it compares the prices from another year to the base-year total, and the difference is written down as a percentage.

Food- Food Primary Articles involve food materials like pulses, cereals, fruits and vegetables, dairy products, spices, and tea and coffee. The base year should belong to a peacetime or a stable era in terms of economic activities.

Wholesale Price Index FAQs

So, we have inflation rates for onions as well as for all food items. Thereafter, a daily price index at the commodity level is constructed by collating the current daily price information from the DoCA. A geometric mean is taken over prices across all centres and denoted as the commodity’s price in the current period. This value is then divided by the predetermined base price for each commodity to obtain the relative price ratio. The ratios are multiplied by their corresponding group weights and summed up to obtain the group index value.

Wholesale Price Index is an indicator of price changes in the wholesale market. WPI calculates the price paid by the manufacturers and wholesalers in the market. WPI measures https://1investing.in/ the changes in commodity price at selected stages before goods reach the retail level. Wholesale Price Index is one of the key macroeconomic indicators of inflation.

Replies to “How is WPI inflation rate calculated in India?”

In India, the WPI is calculated and released by the Economic Adviser in the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry. The currently updated index calculates the variations in 697 goods instead of the earlier value of 676 goods. The WPI is used as a tool to calculate the variations in the monetary values of goods at the wholesale level. In this article on the Wholesale Price Index, we shall discuss what it really is, how it is calculated, its requirements, and a few other details.

The monthly WPI number shows the average price changes of goods usually expressed in ratios or percentages. WPI focuses on the costs of goods traded between business houses, while CPI focuses on the costs of goods/services purchased by consumers. It measures the price increases and decreases of goods in the primary market before reaching the retail sector. The WPI measures changes in prices in the first few production steps, while the PPI counts only the final products.