Inflation based on the Wholesale Price Index (WPI) accelerated in March 2021 to a record 7.4%, a surge that is expected to feed into higher retail prices in the near term.
GS-III: Indian Economy (Macroeconomics, Inflation, Monetary Policy)
Dimensions of the Article:
- What is Inflation?
- What is Wholesale Price Index (WPI)?
- What is Consumer Price Index (CPI)?
- Differences between WPI Vs CPI
What is Inflation?
- Inflation refers to the consistent rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc. Inflation measures the average price change in a basket of commodities and services over time.
- A moderate level of inflation is required in the economy to ensure that production is promoted. Excess Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.
- In India, inflation is primarily measured by two main indices — WPI (Wholesale Price Index) and CPI (Consumer Price Index) which measure wholesale and retail-level price changes, respectively.
What is Wholesale Price Index (WPI)?
- Wholesale Price Index (WPI) measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
- WPI is published by the Office of Economic Adviser, Ministry of Commerce and Industry.
- It is the most widely used inflation indicator in India and it is used for macro-level policy making.
- The weightage given in WPI is consistent with the structure of the economy: manufactured goods (64) > primary articles (23) > fuel and power (13)
- WPI for manufactured goods is released monthly, for the other two (Primary Article and Fuel and power) it is released weekly.
- It is worth noting that many commodities have two sets of prices. One is the retail price which the consumer actually pays. The other is the wholesale price, the price at which goods are traded in bulk. These two may differ in value because of the margin kept by traders.
- Major criticism for this index is that the general public does not buy products at wholesale price.
- The base year of All-India WPI has been revised from 2004-05 to 2011-12 in 2017. Revision in 2010 led to more items, wider coverage, more quotations helping in disseminating more realistic and reliable data,facilitating better DM and policy intervention.
What is Consumer Price Index (CPI)?
- Consumer Price Index (CPI) measures price changes from the perspective of a retail buyer.
- CPI is released by the National Statistical Office (NSO).
- Base Year for CPI is 2012 and the Monetary Policy Committee (MPC) uses CPI data to control inflation.
- The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
- The CPI has several sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.
Four types of CPI are as follows:
- CPI for Industrial Workers (IW).
- CPI for Agricultural Labourer (AL).
- CPI for Rural Labourer (RL).
- CPI (Rural/Urban/Combined).
Of these, CPI for Industrial Workers (IW), CPI for Agricultural Labourer (AL) and CPI for Rural Labourer (RL) are compiled by the Labour Bureau in the Ministry of Labour and Employment.
CPI (Rural/Urban/Combined) is compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.
Differences between WPI Vs CPI
|Basis For Comparison||Wholesale Price Index (WPI)||Consumer Price Index (CPI)|
|Meaning||WPI, amounts to the average change in prices of commodities at the wholesale level||CPI, indicates the average change in the prices of commodities, at the retail level.|
|Published by||Office of Economic Advisor (Ministry of Commerce & Industry)||Central Statistics Office (Ministry of Statistics and Programme Implementation)|
|Measures prices of||Goods only||Goods and Services both|
|Measurement of Inflation||The first stage of the transaction||The final stage of the transaction|
|Prices paid by||Manufacturers and wholesalers||Consumers|
|How many items covered||697 (Primary, fuel & power and manufactured products)||448(Rural Basket) 460 (Urban Basket)|
|What type of items covered||Manufacturing inputs and intermediate goods like minerals, machinery basic metals etc.||Education, communication, transportation, recreation, apparel, foods and beverages, housing and medical care|
|Used by||Only a few countries including India||157 countries|
|Data released on||Primary articles, fuel, and power (Weekly basis) & overall (monthly basis since 2012)||Monthly basis|
-Source: The Hindu