Difference between Consumer Price Index (CPI), Wholesale Price Index (WPI), and Production Price Index (PPI).

Economy and Finance

Difference between Consumer Price Index (CPI), Wholesale Price Index (WPI), and Production Price Index (PPI).

13 Dec 2023 Zinkpot 174

Producer Price Index (PPI), Wholesale Price Index (WPI), and Consumer Price Index (CPI) are all measures of price inflation, but they focus on different segments of the economy and serve distinct purposes. Here's a detailed difference between the three:
Producer Price Index (PPI):
- Purpose: PPI measures the average change over time in the selling prices received by domestic producers for their output. It provides insight into the price changes at the producer or manufacturing level.
- Coverage: It includes the prices of goods and services at various stages of production, such as raw materials, intermediate goods, and finished goods.
- Components: PPI is often categorized into three main stages:
  1. Commodity Stage 1 (Raw Materials and Intermediate Goods): Prices at the initial stages of production.
  2. Commodity Stage 2 (Intermediate Goods): Prices at the intermediate stages of production.
  3. Commodity Stage 3 (Finished Goods): Prices at the final stages of production.
- Calculation: The index is calculated based on the price movements of a basket of representative goods and services at each stage of production.
Wholesale Price Index (WPI):
- Purpose: WPI measures the average change in the prices of goods traded in bulk and at the wholesale level. It reflects price movements before reaching the final consumer.
- Coverage: It includes the prices of commodities traded between businesses, such as wholesalers and retailers.
- Components: Like PPI, WPI includes various stages of production: primary articles, fuel and power, and manufactured products.
- Calculation: WPI is calculated based on the price changes of a selected basket of goods and services at the wholesale level.
Consumer Price Index (CPI):
- Purpose: CPI measures the average change in the prices paid by urban consumers for a basket of goods and services consumed. It reflects the inflation experienced by the end consumers.
- Coverage: It includes a wide range of goods and services purchased by households, such as food, clothing, housing, education, and healthcare.
- Components: CPI is typically divided into various expenditure categories, with each category representing a different share of the total consumption expenditure.
- Calculation: CPI is calculated based on the price movements of a basket of goods and services that are representative of the consumption patterns of a specific group of consumers.
In summary, PPI focuses on producer prices at various stages of production, WPI concentrates on wholesale prices at the point of bulk transactions, and CPI reflects the changes in prices of goods and services at the retail level as experienced by consumers. Each index provides a unique perspective on inflation within different sectors of the economy.
India is planning to move from the Wholesale Price Index (WPI) to the Producer Price Index (PPI) in the future as most of the G20 countries follow this practice.