Understanding the Difference Between Consumer Price Index (CPI) and Wholesale Price Index (WPI)
If you are into any sort of economic activity, whether you are running a business or an individual, chances are that you must have heard about the terms Consumer Price Index (CPI) and Wholesale Price Index (WPI). These two terms are commonly used economic indicators that help us measure the inflation rate in a country. However, there is a significant difference between these two terms which plays a crucial role for individuals and businesses to understand.
Consumer Price Index
Consumer Price Index, commonly known as CPI, measures how much a basket of goods and services costs an individual in a particular period. In other words, CPI represents the average prices of goods and services that a household purchases. It takes into account a wide range of goods and services that an average consumer purchases, including food, housing, transportation, and medical care.
CPI is generally calculated on a monthly basis, and its value is presented as a percentage change from the previous period. For instance, if the CPI value for September is 2%, it means that the basket of goods and services costs 2% more than what it was in August.
Wholesale Price Index
Wholesale Price Index, commonly known as WPI, measures the average change in the prices of goods traded in the wholesale market. It calculates the changes in the prices of goods purchased by producers and companies in bulk quantities. WPI takes into account a wide range of goods, including raw materials, intermediate goods, and finished goods.
WPI is generally calculated on a monthly basis, and its value is presented as a percentage change from the previous period. For instance, if the WPI value for September is 2%, it means that the cost of goods purchased in bulk by companies is 2% more than what it was in August.
Conclusion
In conclusion, while CPI measures the cost of goods and services for an individual consumer, WPI measures the cost of goods at a wholesale level in the market. Both these measures are instrumental tools in measuring inflation and help businesses and individuals understand the changes in the economy. Therefore, understanding the difference between CPI and WPI is crucial for individuals and businesses to make informed decisions related to finance and investments.
Table difference between consumer price index and wholesale price index
| Consumer Price Index (CPI) | Wholesale Price Index (WPI) | |
|---|---|---|
| Meaning | It measures the changes in the prices of goods and services at the retail level, paid by consumers. | It measures the changes in the prices of goods sold in bulk quantities at the wholesale level, paid by manufacturers and producers. |
| Scope | It covers a wide range of goods and services consumed by households, including food, clothing, housing, transportation, medical care, entertainment, etc. | It covers a limited range of goods sold in bulk quantities, including raw materials, fuels, chemicals, metals, machinery, etc. |
| Basket of Goods | The basket of goods for CPI is based on the consumption pattern of households at the national level. | The basket of goods for WPI is based on the production pattern of industries at the national level. |
| Weightage | The weightage of each item in the basket of goods is based on its share in the overall consumption expenditure of households. | The weightage of each item in the basket of goods is based on its share in the overall production cost of industries. |
| Purpose | To assess the impact of price changes on the purchasing power of consumers and to adjust the wages, salaries, pensions, etc. | To assess the inflationary pressures on industries and to adjust the selling prices, profit margins, etc. |