how is wholesale price index different from consumer price index
Answers
The Wholesale Price Index is the price of a representative basket of wholesale goods. Some countries use WPI changes as a central measure of inflation. But now India has adopted new CPI to measure inflation. However, United States now report a producer price index instead.
Whereas, A consumer price index measures changes in the price level of market basket of consumer goods and services purchased by households. The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically.
How is WPI (Wholesale Price Index) calculated?
In this method, a set of 435 commodities and their price changes are used for the calculation. The selected commodities are supposed to represent various strata of the economy and are supposed to give a comprehensive WPI value for the economy.
WPI is calculated on a base year and WPI for the base year is assumed to be 100. To show the calculation, let’s assume the base year to be 1970. The data of wholesale prices of all the 435 commodities in the base year and the time for which WPI is to be calculated is gathered.
Let’s calculate WPI for the year 1980 for a particular commodity, say wheat. Assume that the price of a kilogram of wheat in 1970 = Rs 5.75 and in 1980 = Rs 6.10
The WPI of wheat for the year 1980 is,
(Price of Wheat in 1980 – Price of Wheat in 1970)/ Price of Wheat in 1970 x 100
i.e. (6.10 – 5.75)/5.75 x 100 = 6.09
Since WPI for the base year is assumed as 100, WPI for 1980 will become 100 + 6.09 = 106.09.
In this way individual WPI values for the remaining 434 commodities are calculated and then the weighted average of individual WPI figures are found out to arrive at the overall Wholesale Price Index. Commodities are given weight-age depending upon its influence in the economy.
Hope this helps.. :-)