What is inflation index? State the difference between wholesale price index (WPI) and consumer price index (CPI).

An inflation index is an economic tool used to measure the rate of inflation in an economy. There are several different ways to measure inflation. In India, Consumer Price Index (CPI) and Wholesale Price Index (WPI) are two major indices for measuring inflation. In United States, CPI and PPI (Producer Price Index) are two major indices. The Wholesale Price Index (WPI) was main index for measurement of inflation in India till April 2014 when RBI adopted new Consumer Price Index (CPI) (combined) as the key measure of inflation. Key differences between WPI & CPI Primary use of WPI is to have inflationary trend in the economy as a whole. However, CPI is used for adjusting income and expenditure streams for changes in the cost of living. WPI is based on wholesale prices for primary articles, administered prices for fuel items and ex-factory prices for manufactured products. On the other hand, CPI is based on retail prices, which include all distribution costs and taxes. Prices for WPI are collected on voluntary basis while price data for CPI are collected by Investigators by visiting markets. CPI covers only consumer goods and consumer services while WPI covers all goods including goods transacted in the economy. WPI weights primarily based on national accounts and enterprise survey data and CPI weights are derived from consumer expenditure survey data.