The Indian Government’s Ministry of Labour & Employment recently made public the Consumer Price Index: Industrial Labour (CPI:IW). This release has again brought discussions concerning the measures of inflation in India to the fore. Two commonly used indicators for tracking inflation, the Wholesale Price Index (WPI), and Consumer Price Index (CPI) bear particular relevance.
The Wholesale Price Index: A Broad Brush
The WPI is the most widely employed inflation indicator in India. It’s responsible for representing the price of goods at wholesale before they reach the retail market. The Office of Economic Adviser, within the Ministry of Commerce and Industry, is tasked with publishing these details.
While this index is of importance, it attracts criticism due to its limitation of reflecting the prices at which the general public purchases goods. The average consumer does not buy products at a wholesale price; therefore, some argue that this measure isn’t an accurate representation of inflation as experienced by the public.
Furthermore, the base year of All-India WPI was revised in 2017 from 2004-05 to 2011-12.
Consumer Price Index: From a Retail Buyer’s Perspective
CPI offers an alternative perspective to WPI, focusing on price changes from the viewpoint of a retail buyer. It tracks variations over time in the level of retail prices for selected goods and services — those that define groups of consumers spend their incomes on.
Distinguishingly, there are four types of CPI in use:
1. CPI for Industrial Workers (IW),
2. CPI for Agricultural Labourer (AL),
3. CPI for Rural Labourer (RL),
4. CPI (Rural/Urban/Combined).
The first three categories are compiled by the Labour Bureau within the Ministry of Labour and Employment while the fourth is prepared by the Central Statistical Organisation (CSO) in the Ministry of Statistics and Programme Implementation. The CPI’s base year is 2012.
| Name | Description | Compiled By |
|---|---|---|
| CPI (IW) | Industrial Workers | Labour Bureau, Ministry of Labour and Employment |
| CPI (AL) | Agricultural Labourer | Labour Bureau, Ministry of Labour and Employment |
| CPI (RL) | Rural Labourer | Labour Bureau, Ministry of Labour and Employment |
| CPI (Rural/Urban/Combined) | Rural, Urban and Combined Populations | Central Statistical Organisation, Ministry of Statistics and Programme Implementation |
The CPI and WPI: A Comparison
It’s essential to understand the differences between these two indices when interpreting inflation in India. While both indicators measure inflationary trends (the movement of price signals) within the economy, they do so from different perspectives and with varying weightages assigned to food, fuel and manufactured items.
The WPI tracks inflation at the producer level, providing a macroeconomic perspective. Contrastingly, the CPI captures changes in price levels at the consumer level, reflecting the everyday experiences of individuals.
A significant differentiation between WPI and CPI is their treatment of services. While WPI does not include changes in service prices, CPI encapsulates this significant economic sector.
Consequently, in April 2014, the Reserve Bank of India adopted the CPI as its primary measure of inflation, recognising the increasing importance of services in the broader Indian economy.