To measure inflation in an economy, usually, Wholesale Price Index (WPI) and Consumer Price Index (CPI) are used. Wholesale Price Index helps in measuring the average change in prices received on bulk sale of goods. On the other hand, Consumer Price Index is one that computes the changes in the general price level of a class of consumer goods.
Indexation is the process of adjusting the monetary proceeds such as wages, interests, dividend, taxes, etc., with the help of price index, so as to compensate for changes in general price level and maintain the buying power of the consumers. Price Index refers to the index number reflecting the degree to which price of a class of commodities has been changed over time when compared to the base year.
Take a read of this article to learn the differences between Consumer Price Index (CPI) and Wholesale Price Index (WPI).
Content: Wholesale Price Index (WPI) Vs Consumer Price Index (CPI)
|Basis for Comparison||Wholesale Price Index (WPI)||Consumer Price Index (CPI)|
|Meaning||Wholesale Price Index (WPI), amounts to the average change in prices of commodities at wholesale level.||Consumer Price Index (CPI), indicates the average change in the prices of commodities, at retail level.|
|Published by||Office of Economic Advisor||Central Statistics Office|
|Measurement of Inflation||First stage of transaction||Final stage of transaction|
|Covers||Goods only||Goods and Services|
|Focuses on||Prices of goods traded between business houses.||Prices of goods purchased by consumers.|
Definition of Wholesale Price Index (WPI)
WPI expands to Wholesale Price Index, can be defined as the commonly used price index which measures the price changes of the goods for voluminous sale, i.e. at the initial stage of the transaction, when the goods are bought by one corporation from another for reselling it. It is recommended by Abhijeet Sen Committee and used to track the price trends that shows the current supply and demand in the industry.
The items in WPI are classified into three main groups: Primary Articles, Fuel & Power and, Manufactured Products. It does not take into account the services provided. Further, to compile WPI, the prices used are gathered as under:
- For manufactured goods – Ex-factory level
- For mineral Products – Ex-mine level
- For agricultural Products – Mandi level
Definition of Consumer Price Index (CPI)
Consumer Price Index, shortly called as CPI is an economic barometer, used to gauge the sum of money which a consumer of a specific region or class, has to pay to afford a basket of commodities with a view to consume it, at a definite period, as compared to the price paid by the consumer for similar commodities in the base year.
The fixed basket of commodities, relies on the necessary expenditure of the population under consideration, in a stipulated period. The changes in general price level, influence the buying power of the consumers. The prices used to compile CPI are collected from different markets.
At the start, CPI was used to calculate the changes in the cost of living of the working class, in order to compensate their wages to the changing price level. Later, it is used as an indicator of inflation.
Key Differences Between Consumer Price Index (CPI) and Wholesale Price Index (WPI)
The differences between consumer price index and wholesale price index, are discussed in the points below:
- Wholesale Price Index (WPI) estimates inflation by ascertaining the price paid on the purchase of goods by the wholesalers from manufacturers and comparing it with the base year prices. As against Consumer Price Index (CPI) is used to measure the changes in prices, by making a comparison, through time, the overall price of the fixed basket of commodities.
- In India, Wholesale Price Index is published by Office of Economic Advisor which comes under Ministry of Commerce and Industry. On the contrary, Consumer Price Index is declared by Central Statistics Office, which works under Ministry of Statistics and Programme Implementation.
- In wholesale Price Index, the inflation is measured by tracking the price paid at the first stage of the transaction. Conversely, the price paid at the last stage of the transaction is used to measure inflation in consumer price index.
- WPI basket covers the only price of goods, whereas services like housing education, recreation and so forth are also covered in CPI basket along with the goods.
- WPI is concerned with the prices paid on the trade of goods between two business houses for the purpose of resale. In contrast, CPI stresses on the prices of goods bought by the consumers for the purpose of consumption.
Both WPI and CPI uses Laspeyre’s Index to calculate the inflation rate. While consumer price index is a mechanism that identifies the change in the general price level, from the consumer’s perspective, WPI represents the price of a basket of wholesale commodities.
Previously in India, WPI is used as a central measure of computing inflation in the economy, but then CPI is adopted as the ideal measure for estimating inflation. This is due to the fact that a common man does not transact on wholesale level regularly. Moreover, it does not represent the trends of prices at the retail level.
But, when it comes to CPI, it measures inflation at the consumer level, as it traces the price of commodities purchased by an individual in small quantities for the household.