Comparison – Consumer and Wholesale Price

Comparison of the Consumer and Wholesale Price Indices in India

India uses the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) as measures of inflation. The WPI was being used as a measure of inflation till recently and after April 2014 the new combined CPI is being used by the RBI as the main policy measure. RBI’s monetary policy now focusses on targeting inflation at 4% (measured by the CPI) with a leeway window of +/- 2%., i.e. minimum 2% and maximum 6%

•  The major drawback of the WPI as compared to the CPI is that it does not include services, something which cannot be ignored as the services sector has the highest share in India’s GDP(65.6% of GDP in 2010-11), and has also been growing at a faster rate than the other sectors. Thus the WPI does not include inflation in the prices of services.
• WPI is meant to gauge the extent to which of price rise affect wholesale markets. Rather it is being used to scale effect of price rise on the consumers. Thus it does not take into account the retail margin. There are many commodities which consumers do not use but are incorporated in WPI, form e.g. Manganese ore, aviation turbine fuel or paper pulp. It does not bring to light the actual price change which the end consumer has to contend with and hence a change in their cost of living. Thus in this respect also, the CPI is preferred to the WPI.
• It is difficult to differentiate between the services offered to producers and businesses and the services offered to the consumers. In case of the latter, essential services like education, public health and transport are available both at subsidized and market rates.
• The purpose of the PPI is to provide a measure of prices received by producers of commodities. The WPI does not do that either, as it measures prices at the intermediate level.

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