Q. Consider the following statements :

(1) The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
(2) The WPI does not capture changes in the prices of services, which CPI does.
(3) The Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

Which of the statements given above is/are correct?

  • 1 and 2 only
  • 2 only
  • 3 only
  • 1, 2 and 3

Answer: (a) 1 and 2 only

Wholesale Price Index
  • The Wholesale Price Index represents the price of a basket of wholesale goods. WPI focuses on the price of goods that are traded between corporations.
    • It does not concentrate on goods purchased by the consumers.
  • The Wholesale Price Index (WPI) measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
  • The Office of the Economic Adviser in the Department of Industrial Policy and Promotion, Ministry of Commerce & Industry is responsible for compiling WPI and releasing it.
  • The main objective of WPI is monitoring price drifts that reflect demand and supply in manufacturing, construction and industry.
  • WPI helps in assessing the macroeconomic as well as microeconomic conditions of an economy.
  • It is the most widely used inflation indicator in India.
  • 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.
Consumer Price Index
  • It measures price changes from the perspective of a retail buyer. It is released by the National Statistical Office (NSO).
  • 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, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. Fourth is compiled by the NSO in the Ministry of Statistics and Programme Implementation.
  • Base Year for CPI is 2012.
    • Recently, the Ministry of Labour and Employment released the new series of Consumer Price Index for Industrial Worker (CPI-IW) with base year 2016.
  • The Monetary Policy Committee (MPC) uses CPI data to control inflation. In April 2014, the Reserve Bank of India (RBI) had adopted the CPI as its key measure of inflation.
Difference between CPI and WPI
  • WPI tracks inflation at the producer level and CPI captures changes in prices levels at the consumer level.
  • WPI does not capture changes in the prices of services, which CPI does.
  • In WPI, more weightage is given to manufactured goods, while in CPI, more weightage is given to food items.
Difference between CPI and WPI