Explained: Difference between WPI and CPI

The government released the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) data on Monday and Tuesday respectively. While the WPI-linked inflation surged to a record high of 15.88 per cent in May, the retail inflation remained above the medium-term target for the 32nd consecutive month at 7.04 per cent.

The WPI and CPI are two commonly used terms to determine inflation in the country. Let's look at detailed information about the two and understand how they are different from each other.

The WPI

It is an indicator that determines the average changes in the price of goods that are sold in bulk in a wholesale market. This index is useful in calculating the change in commodity prices at different stages before it reaches the retailer. The WPI is calculated only for goods.

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Tuesday's WPI data highlighted a surge to 15.88 per cent in May as against 15.08 per cent in April, which was driven mainly by inflation in the prices of vegetables. While food inflation surged by around 2 per cent, a marginal decline of 0.74 per cent was recorded in the manufacturing goods segment. Additionally, the WPI jumped from 38.66 per cent in April to 40.62 per cent in May for the power and fuel segment.

The Commerce and Industry Ministry attributed this overall rise to an increase in prices of mineral oils, crude petroleum, natural gas, food articles, basic metals and non-food articles, among others.

The CPI

It is a measure of change in the price of goods and services, which are sold in retail directly to the consumer. It can also be defined as the price that a consumer needs to shell out to purchase goods or services over a given period. The CPI is calculated for both goods and services.

Monday's government’s data on CPI reflected a decline in the overall inflation rate under this category, which came down to 7.04 per cent in May as compared to 7.79 per cent in April 2022. However, it continued to remain above the RBI’s Monetary Policy Committee’s medium-term target of 4 per cent for the 32nd month in a row. The decline is possibly due to a recent excise duty cut on fuel.

Despite a decline in CPI, the upward WPI trend is expected to have an adverse impact on the retail markets.