Discuss the differences between CPI and WPI. Explain their uses and limitations.

Discuss the differences between CPI and WPI. Explain their uses and limitations.

Answer

1. Definition

• CPI = Retail inflation experienced by households

• WPI = Price changes at the wholesale level (bulk transactions)

2. Coverage

CPI (Combined, Rural, Urban)

Includes:

• Food

• Housing

• Clothing

• Transport

• Health

• Education

• Fuel

WPI

Includes:

• Primary articles

• Fuel & power

• Manufactured products

Excludes services entirely.

3. Weights

• CPI weights from NSS CES 2011–12

• WPI weights from 2011–12 wholesale trade data

4. Compiling Agencies

• CPI → NSO

• WPI → Office of Economic Adviser (DEA)

5. Uses

CPI Uses

• Monetary policy

• DA/DR revision

• Poverty analysis

• Cost-of-living comparisons

WPI Uses

• Early inflation signal

• Industrial input cost tracking

• Used for escalation clauses in contracts

6. Limitations

CPI

• Housing index updated only once a year

• CES 2011–12 weights outdated

• Services price measurement is difficult

WPI

• No services

• Not consumer-focused

• Wholesale market shrinking due to GST & digital markets

7. Conclusion

CPI is now India’s main inflation indicator, while WPI continues as a producer-side index.