India’s different inflation measures—WPI versus CPI



WPI versus CPI

In India, there are two measures of inflation:

  1. the headline or Wholesale Price Index (or WPI)
  2. the retail Consumer Price Inflation (or CPI)

The CPI is a relatively new entrant. Its index values have been published since January 2011. The need for the CPI was felt because the WPI wasn’t effectively representing how price increases impacted the general population. The WPI was revamped. Its base year was changed from 1993–1994 to 2004–2005. The commodity basket was raised from 435 to 676 items. The CPI uses 2010 as the base year—from January to December.

Indias inflation indicators

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The Central Statistics Office publishes the CPI index on a monthly basis. It also comes out with separate numbers for the rural and urban population. Before 2011, India didn’t have a combined CPI reading. It was segregated into CPI for Industrial Workers (or CPI-IW), CPI for Urban Non-Manual Employees (or CPI-UNME), CPI for Agricultural Laborers (or CPI-AL), and CPI for Rural Laborers (or CPI-RL).


The differences between the WPI and CPI are a result of the different items that are included in each measure and the weights. For instance, the WPI doesn’t account for services like education, medical care, transport, and communication. The CPI includes these services. Considering that India is a services economy, these domestic services are important if you want to assess the price increase for the general population.

The weight of food items is another difference between the two measures of inflation in India. Food items—including food grains, fruits, vegetables, milk, eggs, meat, fish, condiments, spices, tea, and coffee—account for 14.34% of the WPI. In contrast, they make up 39.73% of the CPI. Food, beverages, and tobacco make up 49.71% of the CPI.

As a result, the CPI is more susceptible to changes in food prices than the WPI. Meanwhile, the WPI is more sensitive to fuel. It assigns a weight of 14.91% to fuel prices. The CPI assigns 9.49% to fuel. Also, higher transaction costs and taxes are only reflected in the CPI.

Although it will be some time before inflation is in an acceptable range for a sustained period, the signs in the past year have been encouraging. Inflation’s impact is varied across stocks.

You can consider investing in exchange-traded funds (or ETFs) with broad exposure to Indian stocks—like the WisdomTree India Earnings Fund (EPI), the iShares MSCI India ETF (INDA), and the PowerShares India Portfolio (PIN).

If you want broader exposure to emerging markets where India forms more than 10% of the portfolio, you can consider the Vanguard FTSE Emerging Markets ETF (VWO) and the Schwab Emerging Markets Equity ETF (SCHE).

In the next part of this series, we’ll discuss an indicator that has troubled India in the past decade—fiscal deficit.


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