Question : Can you please tell me why India is using WPI instead of CPI Method for calculation of Inflation.
Answer : India use WPI (Whole Sale Price Index) Method for the calculation of inflation in Indian Economy. We used to neglect CPI Method. However, the reasons are mentioned below:
1) It's totally depends on the data available for WPI and CPI Method. Data on Wholesale Price Index (WPI) is
available every week, while data on Consumer Price Index (CPI) is only
available every month, so there is a time lag in CPI data availability
compared to WPI data availability, which can impact decision making both
for RBI and the Government of India, as the previous answer states.
2) In India, we do not have one CPI calculated per se. Earlier, there were 4 CPIs calculated for 4 different sets of workers, and now we have three such CPIs, out of which the most famous is CPI for Industrial Workers (CPI-IW). The others used currently are CPI for agricultural laborers and CPI for rural laborers.
The argument used therefore is that there is no one CPI value which can be used for decision making by either RBI or the Government of India.
3) According to our policy makers/decision makers at RBI and elsewhere, or so it seems, WPI has a broader coverage compared to all the CPIs, in terms of the commodities covered, quotations, larger number of non-agricultural products and tradeable items, which are missing in the CPIs.
Also, interest rates which the RBI controls may not have much of a correlation with high food prices and therefore decision makers may feel that since they can't target inflation across major sections constituting the CPI, they would rather focus on WPI constituted of goods on whose demand interest rates may have a more significant impact.
4) WPI is calculated on an all India basis, while CPI is calculated for specific centres in India and then this is aggregated to an all India index.
2) In India, we do not have one CPI calculated per se. Earlier, there were 4 CPIs calculated for 4 different sets of workers, and now we have three such CPIs, out of which the most famous is CPI for Industrial Workers (CPI-IW). The others used currently are CPI for agricultural laborers and CPI for rural laborers.
The argument used therefore is that there is no one CPI value which can be used for decision making by either RBI or the Government of India.
3) According to our policy makers/decision makers at RBI and elsewhere, or so it seems, WPI has a broader coverage compared to all the CPIs, in terms of the commodities covered, quotations, larger number of non-agricultural products and tradeable items, which are missing in the CPIs.
Also, interest rates which the RBI controls may not have much of a correlation with high food prices and therefore decision makers may feel that since they can't target inflation across major sections constituting the CPI, they would rather focus on WPI constituted of goods on whose demand interest rates may have a more significant impact.
4) WPI is calculated on an all India basis, while CPI is calculated for specific centres in India and then this is aggregated to an all India index.
So, these are some reasonable facts which affects the inflation in real time. India used WPI instead of CPI to calculate inflation.
