BEWARE OF FAKE INSTITUTES WITH SIMILAR NAMES. blank    blank
banner

The Enigma of CPI-WPI Divergence: Implications and Insights.



  Oct 30, 2023

Divergence of CPI-WPI Inflation



Introduction

The latest inflation numbers present an intriguing picture, showing a decreasing Consumer Price Index (CPI) and a rising Wholesale Price Index (WPI).
This divergence can be puzzling for analysts, policymakers, and the general public.

Key Differences: CPI vs WPI

Scope and Coverage:

CPI: Measures retail prices affecting consumers.

WPI: Focuses on wholesale prices impacting manufacturers.

Basket of Goods:

CPI: Heavily weighted towards food (46%).

WPI: More balanced, with food accounting for about 24.4%.

Vulnerabilities:

CPI: Susceptible to climatic changes affecting food prices.

WPI: Vulnerable to changes in global commodity prices and crude oil prices.

Driving Factors

Climate Phenomenons and CPI

El Niño can lead to failed monsoons, affecting agriculture in India, where more than 40% of sown areas depend on these rains.
This impacts food prices and, in turn, drives up the CPI due to its higher weightage on food items.

Geopolitical Instability and WPI

Changes in crude oil prices, often driven by geopolitical tensions, primarily affect WPI due to the higher weightage given to fuel and power.

Consequences of Negative WPI

A negative WPI implies deflation in the average prices of manufacturing inputs, possibly discouraging manufacturers. It's an essential metric for many sectors and influences global investment decisions.

Role of RBI

With crude oil prices expected to rise, the Reserve Bank of India must monitor both indices to manage business confidence and control inflation for the end consumer.

Conclusion

Understanding the factors contributing to these diverging trends is crucial for policy formulation.
The CPI-WPI gap in India is mainly due to the differential weightage given to food items and susceptibility to different types of economic and environmental factors.
Thus, a holistic approach is needed to interpret and act on these indices effectively.


Share:
 

Get a call back

Fill the below form to get free counselling for UPSC Civil Services exam preparation

 
UPSC DAILY CURRENT AFFAIRS

 
MULE ACCOUNTS AND RBI’S MEASURES
 
INDIA: COUNTER-PIRACY IN RED SEA
 
Indian Navy anti-piracy operation
 
LANDFILLS:WASTE MANAGEMENT CRISIS IN INDIA'S MEGA CITIES
 
Producer Price Index (PPI) in India: Understanding the Basics
 
STARTUPS for SOCIAL DEVELOPMENT IN INDIA
 
INDIA’S CHALLENGE OF URBAN FLOODS
 
SEPARATION OF POWERS IN INDIA
 
INDIA-TAIWAN RELATIONS: A GROWING PARTNERSHIP
 
GLOBAL “SWING STATES” AND THE WORLD ORDER
 
CONSTITUTION BENCH OF SUPREME COURT OF INDIA
 
KARGIL WAR 25TH ANNIVERSARY
 
MARXIST SCHOOL OF MORALITY AND ETHICS
 
MIDDLE CLASS VALUES
 
SAFE HARBOUR RULES IN INDIA