Difference between Wholesale Price Index and Consumer Price Index
The main difference between WPI and CPI is that WPI tracks changes in wholesale-level prices of goods, while CPI measures retail-level price fluctuations of goods and services from the consumer’s viewpoint. Let’s understand more differences.
There are multiple types of baskets of goods used to calculate and track price indexes, depending on the goods and services used. Consumer Price Indexes (CPI) and Wholesale Price Indexes (WPI) are the most common price indexes. WPI and CPI are both measures of inflation that economists and policymakers use to monitor economic changes. However, there are differences between Wholesale Price Index and Consumer Price Index. Let’s understand the difference between them.
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Table of Content
- Comparative Table
- What is Wholesale Price Index?
- What is Consumer Price Index?
- Key Differences: Wholesale Price Index and Consumer Price Index
Comparative Table: Wholesale Price Index and Consumer Price Index
The Wholesale Price Index (WPI) and Consumer Price Index (CPI) are key economic indicators used to measure inflation in an economy. While WPI tracks price changes at the wholesale level before goods reach consumers, CPI reflects the retail price changes that directly impact households. The table below highlights the key differences between WPI and CPI.
| Wholesale Price Index (WPI) | Consumer Price Index (CPI) | |
| Meaning | It measures the average change in the price in the sale of goods in bulk quantity by the wholesaler. | CPI measures the change in the price in the sale of goods or services in retail or directly to the consumer. |
| Area of Focus | It focuses on the goods that are traded only between wholesalers or businesses. | It focuses on the goods that the consumer is purchasing. |
| Numbers of Items Covered | 697 | 448 for rural and 460 for urban |
| Reference Year for Calculation | Financial year | Calendar year |
| Releasing Date | Every week for primary products, fuel, and power for the remaining items in monthly publishing. | Every month. |
| Prices Bear By | By manufacturer and wholesaler. | By consumer. |
| Inflation Measurement | WPI measures inflation in the first stage. | WPI measures inflation in the last stage. |
| Price Measurement | It is restricted to only goods. | It is for both goods and services. |
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What is Wholesale Price Index?
The Wholesale Price Index (WPI) measures the average price level of goods sold in wholesale markets. Economists use this method to indicate inflation in an economy. WPI measures the price changes of goods sold in bulk by manufacturers and wholesalers before they reach retail. It includes prices of commodities such as food, raw materials, and manufactured goods.
The WPI is calculated by taking a weighted average of the prices of a basket of goods, with each item’s weight determined by its share of total wholesale sales.
The main components of the Wholesale Price Index (WPI) include:
- Primary Articles: Agricultural products and raw materials.
- Fuel and Power: Energy sources like oil, coal, and electricity.
- Manufactured Products: Goods produced in factories, including textiles, chemicals, and machinery.
What is Consumer Price Index?
The consumer Price Index (CPI) measures the average price level of household goods and services. It is one of the most commonly used measures of inflation in an economy. CPI measures changes in the prices of a basket of goods and services that households typically consume, such as food, housing, transportation, and medicine.
The CPI is computed by averaging the prices of goods and services in a basket based on their share of household spending. The CPI is an important indicator of the cost of living for households, as it reflects changes in the prices of goods and services they consume regularly.
The main components of the Consumer Price Index (CPI) are:
- Food and Beverages: Groceries and non-alcoholic drinks.
- Housing: Rent, utilities, and maintenance costs.
- Clothing and Footwear: Apparel, footwear, and related services.
- Transport: Costs of public transport and private vehicle expenses.
- Health and Personal Care: Medical services and personal care products.
- Recreation: Entertainment and leisure activities.
Key Differences: Wholesale Price Index and Consumer Price Index
- The WPI measures the average price change of goods sold in bulk by producers or wholesalers.
- In contrast, the CPI measures the average change in household goods and services prices. It includes goods and services purchased by both urban and rural households.
- WPI includes goods that businesses and consumers purchase but does not include services. It is calculated based on the wholesale prices of a basket of goods weighted according to their importance in the economy.
- CPI does not include goods purchased by businesses. We can calculate CPI based on a basket of household goods and services, which are also weighted according to their importance in the economy.
- We calculate WPI by taking a weighted average of the prices of goods sold in bulk by manufacturers and wholesalers before they reach the retail level.
- In contrast, CPI takes a weighted average of the price of goods and services typically consumed by households.
- Another key difference between the two indices is their intended use. Businesses use WPI to calculate their cost of production, and policymakers to monitor inflation at the wholesale level.
- Policymakers use CPI to monitor consumer inflation and adjust policies accordingly, such as interest rates or social welfare programs.
Conclusion
WPI and CPI are both inflation measures that track price changes over time. The main difference between the two is the basket of goods they measure. WPI measures the average price level of goods sold in wholesale markets, while CPI measures the average price level of goods and services purchased by households.
WPI and CPI are important inflation indicators and can provide valuable information for economic decision-making.
FAQs
What is the purpose of the Wholesale Price Index?
The purpose of the Wholesale Price Index (WPI) is to measure and track changes in the average prices producers receive for their goods over time. It serves as an important economic indicator, helping policymakers, businesses, and analysts assess inflation trends, make pricing decisions, and formulate monetary policy. WPI is particularly useful for understanding price movements in wholesale markets.
How does the Consumer Price Index affect consumers?
The Consumer Price Index (CPI) affects consumers by providing a measure of inflation, indicating how prices of goods and services change over time. When CPI rises, it signals increased costs of living, which can impact purchasing power, savings, and spending habits. High CPI may lead to adjustments in wages and government benefits, influencing overall economic well-being.
What is the main difference between WPI and CPI?
The main difference between WPI and CPI lies in the scope of goods they measure. WPI tracks price changes at the wholesale level, primarily focusing on goods traded between businesses, while CPI measures price changes at the retail level, focusing on goods and services purchased by consumers.
Why are WPI and CPI important for economic policy?
WPI and CPI are critical for economic policy as they provide key insights into inflation trends. WPI helps policymakers understand price movements at the wholesale level, which can indicate future consumer prices. CPI, on the other hand, directly reflects the cost of living for households. Together, they inform decisions on interest rates, fiscal policy, and overall economic health, enabling governments to implement strategies that stabilize the economy and manage inflation.
Which index is more relevant for consumers, WPI, or CPI?
CPI is more relevant for consumers as it directly reflects the changes in the prices of goods and services they purchase. It helps consumers understand the impact of inflation on their daily expenses and standard of living.
How are the baskets of goods different in WPI and CPI?
The baskets of goods and services in WPI and CPI are different because they represent distinct economic activities. WPI's basket includes commodities commonly traded between businesses, such as raw materials and intermediate goods. On the other hand, CPI's basket consists of goods and services purchased by households, including food, housing, healthcare, education, and transportation.
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