Question 1 · 10 marks · 245 words written
Differentiate between Consumer Price Index (CPI) and Wholesale Price Index (WPI). Do you think that CPI is a better measure of inflation as compared to WPI? Substantiate. (Answer in 150 words) 10 Marks.
Opening
CPI and WPI are indices to gauge inflation levels in an economy and while CPI is from consumers point-of-view, WPI is from producers point of view.
Presently, CPI is at 6.9%, above the RBI mandated ceiling of 6%.
| Consumer Price Index | Wholesale Price Index | |
|---|---|---|
| definition | the rise in price in the value of basket of goods and services over a base year. | rise in price in the value of basket of goods over a base year |
| Base year | 2011-12 | 2011-12 |
| Basket | includes food, fuel, services | includes manufacturing etc |
| released by | DEA | DPIIT |
| used as a measure of inflation | ✓ | earlier used |
CPI was used as a measure of inflation recently, as :
Body · points and prose
(1) It covers diverse range of goods (2) Point of view of consumers (3) Its inclusion of services provides a broader picture of economy (4) It is released monthly and gives policymakers options to change tracks in case of rising or dipping inflation (5) It gives deeper insights into the structural reforms required in an economy (6) Inclusion of food product ensures that core inflation is also looked into (7) Reflection of unemployment rates as inflation ∝ employment rates.
Close · a summary
Thus, CPI is a better measure of inflation due to its ability to paint a holistic picture of economy and ensure course correction.