Wholesale Price Index (WPI) and Consumer Price Index (CPI) are economic measures used to track inflation. WPI tracks purchases from producers to merchants, while CPI tracks purchases from merchants to consumers. Countries track inflation to maintain the standard of living and overall health of the economy. Developed economies use CPI, while developing economies use WPI to track inflation.
A wholesale price index (WPI) and consumer price index (CPI) are both economic measures used by countries to track inflation. WPI and CPI establish a basis for the prices of a standard collection of goods sold to different segments of the market and track changes in the price of those goods over time. The percentage increase in prices from the base price indicates the rate of inflation. Countries typically track both the WPI and the CPI, but use only one index as their official measure of inflation.
Inflation is the increase in the prices of goods and services over time when a buyer’s income stays the same. It reflects how much a buyer can buy today with a certain amount of money, compared to what he could have bought at a certain time in the past. If his money buys less today than in years past, prices have inflated. Countries track inflation and try to master it, as inflation affects the standard of living within the country and the overall health of the economy. A decrease in purchasing power leads to a reduction in purchases and an increase in poverty levels.
Countries use economic indices to track inflation. Two of the most common indices are WPI and CPI. WPI tracks purchases from producers to merchants. The CPI tracks purchases from merchants to consumers. Each index selects a commodity bucket to track that represents a cross section of the market.
For example, WPI in India monitors 435 different commodities across five sectors. Each individual government decides which products should include the country’s WPI and CPI, so the bucket of tracked goods is not necessarily the same in all economies. Price changes in the WPI are typically recorded weekly, while changes in the CPI are typically monitored monthly.
While both the WPI and CPI can measure inflation, they do so in different ways and produce different results. More advanced economies, such as in the US, UK and Japan, use a CPI. Some developing countries, such as India, use a WPI to track inflation. This choice is a function of how these economies work.
In mature economies, the most important point of inflation is at the consumer level. CPI is the best indicator because it tracks prices at the point where products reach consumers in the final stage of production. Comparatively, developing economies often have to track inflation at every stage of production. For example, a country’s economy may rely heavily on exports, so a measure of inflation, such as a WPI, that tracks prices from wholesaler to merchant might be more relevant than consumer prices.
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