Which is better wpi or cpi?

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).

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:

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.

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.

WPI or Wholesale Price Index is an indicator that is used to determine the changes in the price occurring in case of goods available for wholesale in the market.

WPI is useful in calculating the change in commodity prices that occur at selected stages before it reaches retailers.

In India, WPI is used to measure the changes occurring in the price of commodities available for trading in the wholesale market.

Consumer Price Index or CPI is another price index that focuses on the sum of money that a consumer has to shell out in order to purchase a basket of goods and services over a period of time. CPI measures the price that consumers pay to retailers.

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CPI is used by the Reserve Bank of India as an important tool for determining inflation, which is useful for framing the credit and monetary policy in the country.

Let us discuss some points of difference between the Wholesale Price Index and Consumer Price Index

This concludes the topic of Difference between Wholesale Price Index and Consumer Price Index, which is regarded as an important topic for Commerce students. For more such informational articles, stay tuned to BYJU’S.

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Mainly WPI focus on prices of goods traded between business houses, whereas CPI focuses on prices of goods purchased by consumers. As CPI provides more clarity about inflation and its effect on the overall economy, it is widely used to calculate inflation compared to WPI.