WPI – As the name suggests, it is an index which measures the change in the average price of goods traded in the wholesale market. In India, this index is updated on a weekly basis. A total of 435 commodities are tracked to prepare the index and its fluctuation is monitored on a weekly basis. This gives an indication of the movement of the prices in the market. India uses the WPI as an indicator of the rate of inflation.
CPI – This index is calculated by performing a weighted average on a specified set of goods and services purchased by consumers. Many economists believe that this is a true indicator of the actual cost of living of a consumer and this should decide the changes in the inflation rate. This index actually involves the calculation of the price fluctuation affecting the consumers while WPI does not properly measure the exact price fluctuation a consumer will experience as it’s at the wholesale level. Another thing to note is that, some of the commodities that are part of the WPI basket have lost importance from a consumption point of view.
Most countries calculate the inflation based on the CPI while India calculates based on the WPI. There have been researches provided by many economists which urge the government to move to the CPI model, however there are policy problems which the government points out in moving to that index.