wpi and cpi basic concepts and comparision

1. INFLATION
!!
WHAT IS
WPI AND
CPI ??
HOW IS
INFLATION
CALCULATED
?
HOW WPI
AND CPI IS
CALCULATED
??
WHAT IS
DIFFERENCE
B/W WPI AND
CPI??
WHICH
INDEX IS
BETTER?

3. WPI
CPI
There are two methods to calculate inflation -

4. FARMS WHOLESALE
DEPOT
RETAIL
SHOPS
CONSUMER
WPI CPI

5. IMPORTANT TERMS:
• PRICE INDEX
A price index is a normalized average (typically a weighted average) of
price relatives for a given class of goods or services in a given region,
during a given interval of time.
• BASKET OF GOODS AND SERVICES
The term basket refers to the goods and services represented in the
index and the relative importance attached to each of the items. This
item reflects the typical consumption of a general household

6. WHOLESALE PRICE INDEX
• WPI is the index that is used to measure the change in the average price
level of goods traded in wholesale market .
FORMULA:-
Current price of articles * weightage
Base year prices
*100
Example:
Current price of articles in 1980 is 150 and base year price is 150,
= 240*4 *100
150
So the inflation rate for the year 1981 is 640 i.e., 6.4 %

7. These 697 items are categorised mainly in 3 heads as follow:-
MANUFA
CTURED
PRODUC
TS
64%
PRIMARY
ARTICLE
S
23%
FUEL
AND
POWER
13%
WPI COMPONENTS
ITEMS TRACKED IN WPI
In India, a total of 697 commodities data on price level
is tracked through WPI which is an indicator of
movement in prices of commodities in all trade and
transactions.

9. Consumer Price Index is the main measure of price changes at the retail
level. It measures changes in the cost of buying a representative fixed basket
of goods and services and is generally accepted as a measure of inflation in
the country”. When the CPI rises, the typical family has to spend more
dollars to maintain the same standard of living.
Current year index = Current year price x 100
Base year price
The base year index is equal to 100.
FORMULA:-

10. In India, a total of 448(RURAL) and 460(URBAN) commodities
data on price level is tracked through WPI which is an indicator
of movement in prices of commodities in all trade and
transactions.

13. COMPARISION: WPI and CPI
BASIS WPI CPI
HOW LASPEYRE’S FORMULA LASPEYRE’S FORMULA
WHO Economic Advisor
Ministry of Commerce and
Trade.
Central Statistics Office (CSO)
Ministry of Statistical and
Programme Implementation.
WHERE THEY
GET DATA
Ministries, dept, industries NSSO and Portal workers.
COMPONENTS Primary,manufactured and
fuel and power
8 categories.
ITEMS 697 448(rural)
462(urban)
BASE YEAR 2011-12 2012
GOODS AND
SERVICES
Only goods Both Goods and Services.

14. Why WPI is important?
who Why they use WPI?
GOVERNMENT To design fiscal, trade and economic policies.
RBI To design monetary policy, under Multiple Indicator
mryhod : RBI used WPI.( but Rajan started using CPI for
this purpose, since April 2014 on Urjit Patel
recommendation.)
BUSINESSMAN In the business contract –to calculate price escalation
clauses in the supply of raw material. Machinery and
construction work.

15. Why CPI is important?
who Why they use WPI?
GOVERNMENT • Monitoring price stability.
• Calculating Dearness Allowance
RBI To design monetary policy from april 2014 onwards, based
on Urjit Patel recommendation
BUSINESSMAN Calculating Dearness Allowance