CONSUMER PRICE

INDEX
BY : VAIBHAV KUMAR
(14184)
VIKAS (14190)
TUSHAR SINGH (14179)

What is CPI?
Aconsumer price index(CPI)
measures changes in the price level
of amarket basketofconsumer
goodsandservicespurchased by
households.
The annual percentage change in a
CPI is used as a measure ofinflation.

 CPI is a statistical time-series

measure of a weighted average of
prices of a specified set of goods and
services purchased by consumers. It
is a price index that tracks the prices
of a specified basket of consumer
goods and services, providing a
measure of inflation.
CPI is a fixed quantity price index
and considered by some as cost of
living index.

Where is CPI used?

CPI can be used to index (i.e., adjust for the
effect of inflation) the real value of wages,
salaries,pensions, for regulating prices and
for deflating monetary magnitudes to show
changes in real values.
In most countries, the CPI is, along with the
populationcensusand the USANational
Income and Product Accounts, one of the
most closely watched national economic
statistics.

What is WPI?

WPI is a price index representing

the wholesale prices of a basket of
goods. In several countries such as
India it is used to measure the
inflation, the general rise in the
prices of goods.
It is released on a weekly basis on
every Thursday to measure the
change in the wholesale prices of a
set of goods.

CONTINUATION
..
WPI was first published in 1902, and was one of the
more economic indicators available to policy makers
until it was replaced by most developed countries
by the Consumer Price Index in the 1970s.
WPI is the index that is used to measure the
change in the average price level of goods traded in
wholesale market. In India, a total of 435
commodities data on price level is tracked through
WPI which is an indicator of movement in prices of
commodities in all trade and transactions.
It is also the price index which is available on a
weekly basis with the shortest possible time lag only
two weeks. The Indian government has taken WPI as
an indicator of the rate of inflation in the economy

DIFFERENCE BETWEEN CPI

& WPI

CPI

Consumer price
index measures
inflation only at final
stage of production.
Consumer price
index is the middle
point of the sum of
all the goods bought
by consumers

WPI

Wholesale price
index measures
inflation at each
stage of production.
Wholesale price
index is the middle
point of the sum of
all the goods bought
by the traders

 Many nations have

already shifted to
using CPI.
CPI, on the other
hand, have wellselected variables
The Consumer Price
Index (CPI) is based on
the final prices of
goods at the retail
level

There are only few

countries that uses
WPI to calculate
inflation rates
There are 679
elementary items
included in WPI, some
of which are
insignificant &
outdated goods that
are considered in WPI
Wholesale Price Index
(WPI), is based on the
price prevailing in the
wholesale markets or
the price at which bulk
transactions are made

Drawbacks of using WPI

WPI does not properly measure the exact
price rise an end consumer will experience
because, as the same suggests, it is at the
wholesale level.
More than 100 out of the 435 commodities
included in the Index have ceased to be
important from the consumption point of
view. For example, a commodity like coarse
grains that go into making of livestock feed.
This commodity is insignificant, but continues
to be considered while measuring inflation.
WPI is supposed to measure impact of prices
on business but it is used in India to measure
the impact on consumers.

Why is India not switching over to the

CPI method of calculating inflation?
In India, there are four different types of CPI
indices, and that makes switching over to the
Index from WPI fairly 'risky and unwieldy.' The
four CPI series are: CPI Industrial Workers; CPI
Urban Non-Manual Employees; CPI Agricultural
laborers; and CPI Rural labor.
CPI cannot be used in India because there is too
much of a lag in reporting CPI numbers.
The WPI is published on a weekly basis and the
CPI, on a monthly basis.
And in India, inflation is calculated on a weekly
basis.

How should inflation be measured in

india?
In recent years, consumer price index (CPI)
inflation in India has slowly crept up and reached
double digits.
Though monetary policy in India is not explicitly
charged with delivering low and stable inflation, it
still needs to choose a measure of inflation as a
reference. In this context, a major problem
identified by the Reserve Bank of India (RBI) is the
measurement of inflation in India: Which inflation
index do we target? Our headline inflation index is
the WPI and that does not, by definition, reflect the
consumer price situation

Issues in Choice of Inflation Measure

In most countries, the CPI is the most
widely understood and recognised
measure of inflation. It is available
relatively frequently, and it is
typically not subject to revisions. The
overall CPI is meant to represent the
cost of a representative basket of
goods and services consumed by an
average urban/rural household

Multiple Inflation Measures

The multiplicity of inflation indices available in India
has often been described as problematic and has
been used as an argument for not adopting a fullfledged inflation targeting framework: In India, we
have one wholesale price index and four consumer
price indices. There are ongoing efforts at a
technical level to reduce the number of consumer
price indices, and I believe the technical issues are
not insurmountable. But that still will not give us a
single representative inflation rate for an emerging
market economy with market imperfections,
diverse geography and 1.2 billion people

GDP deflator
The GDP deflator is another indicator of inflation,
which is often considered to be broader than the
CPI and the WPI. The GDP deflator in most
countries is obtained by using a variety of
primary price indices. These are used to deflate
individual components of the GDP valued at
current prices (either from the production or the
demand side estimates) to obtain volume
estimates. The GDP deflator is then defined
implicitly as the ratio of the estimate at current
prices to the one at constant prices.

Different Uses Of CPI

We are going to talk about three uses of CPI :

Indexation
A CPI used for wage or contract index of any specific group ,
wether of population or of products should represent the
coverage of the group concerned .For instance it can be
argued that the weights of a CPI used for indexation of
pioneers should only cover the expenditure of the pension
population. The product and the outlet list could also be more
appropriately targeted if the data exists. More generally it has
to be decided whether the CPI should be in principle a cost of
living index or a pure price index. For certain very special
types of indexation such as for rents , users may prefer to use
just the sub index for rents.

National Accounts Deflation :

The use requires consistency because the prices data used
for the CPI and the expenditure data used in the national
accounts. Both data sets should use the same set of goods
and services and use the same concepts and classification
which for the national accounts be COICOP .This applies to
the valuation of the services of owner occupied having as
well as consumption of own produced food.

Inflation targeting :
It can be assumed that central banks ideally on a timely
index relationg to total inflation not just consumer
inflation .But NSIs generally are unable to construct such
indexes because of the measurement issues relating to
government consumption .In the absence of such an index
most central banks rely on a CPI.

THANK
YOU