What are the reasons behind widening gap between WPI and CPI?
What are the reasons behind widening gap between WPI and CPI? WPI stands for Wholesale price index, while CPI stands for consumer price index. Both these indices are measures of Inflation in an economy. WPI measures Inflation at wholesale level while CPI measures inflation at the final consumer level. There can be various reasons behind the increasing gap between Inflation numbers declared through WPI and CPI. Some of them are-
Body-
Food is considered a major consumption item for consumers/people. Keeping this in mind, the weightage of food articles is higher in CPI than WPI. Due to higher prices of food products like onion and tomatoes, the CPI has been higher than WPI over the past year. Higher Inflation or volatility in prices of food means an unstable agriculture or food market in the country. Oil has a higher weightage in WPI than CPI. A high volatility in oil prices affects WPI much more than CPI. The result in higher gap between WPI and CPI. A sudden movement of WPI due to oil volatility means high dependence of the country on imported Oil. Manufactured goods have a major weightage in WPI at 64%. Lower inflation or fall in price of manufactured products means lower WPI. A decline in prices of manufactured goods does not affect CPI to the same extent. A low inflation or fall in prices of manufactured goods means that there isn’t enough demand for or consumption of Indian manufactured goods.
A consistently widening gap between WPI and CPI is bad news for the economic system of the country. It sends the message that all is not well in the way economic system is running in the country. The same is happening in India and needs to be addressed immediately, in order to ensure a robust economic system
Extra Information-
Components of WPI
Primary articles - 22.62%
• sub-divided into food articles and non-food articles
Fuel and Power - 13.15%
Manufactured goods - 64.23%
Components of CPI
Food and beverages (45.86%)
Housing (10.07%)
Fuel and light (6.84%)
Clothing, bedding, footwear (6.53%)
Misc. - Health, education, recreation etc. (28.32%)
Pan, tobacco and intoxicants (2.38%)
Headline and Core inflation –
headline inflaton-
• number we get from all components
core inflation-
• core means while calculating inflation ignore fuel and food part