RETAIL vs WPI INFLATION

RETAIL vs WPI INFLATION

Subject : Economics

Context : The wholesale price-based inflation shot up to an all-time high of 10.49 per cent in April, on rising prices of crude oil and manufactured items. Also, a low base of April last year contributed to the spike in inflation in April 2021.

Concept :

Wholesale Price Index

• It is the most widely used inflation indicator in India.
• Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
• All transactions at the first point of bulk sale in the domestic market are included.
• Major criticism for this index is that the general public does not buy products at wholesale price.
• The base year of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.

Consumer Price Index / Retail Inflation

• It measures price changes from the perspective of a retail buyer.
• The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
• The CPI has several sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.
• Four types of CPI are as follows:
• CPI for Industrial Workers (IW).
• CPI for Agricultural Labourer (AL).
• CPI for Rural Labourer (RL).
• CPI (Rural/Urban/Combined).
• Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. Fourth is compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.
• Base Year for CPI is 2012.
• The Monetary Policy Committee (MPC) uses CPI data to control inflation.

WPI Vs CPI

• While WPI keeps track of the wholesale price of goods, the CPI measures the average price that households( retail buyers ) pay for a basket of different goods and services.
• Even as the WPI is used as a key measure of inflation in some economies, the RBI no longer uses it for policy purposes, including setting repo rates.
• The central bank currently uses CPI or retail inflation as a key measure of inflation to set the monetary and credit policy.