---
title: "Inflation: CPI vs WPI, Causes and Control | Model Diplomat"
description: "Learn how India measures inflation through CPI and WPI, the structural and monetary causes that drive it, and the RBI-Government toolkit for keeping it under"
url: "https://modeldiplomat.com/learn/lessons/upsc-indian-economy-inflation-measurement-cpi-wpi-causes-control"
---

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Inflation: measurement (CPI/WPI), causes & control

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# Inflation: measurement (CPI/WPI), causes & control

How India measures inflation (CPI vs WPI), the structural and monetary causes, and the RBI-Government toolkit for control under the flexible inflation-targeting framework.

## What inflation is, and how India measures it

Inflation is a sustained rise in the general price level, eroding the purchasing power of money. India measures it through two principal index families.

**Consumer Price Index (CPI):** Compiled by the **National Statistical Office (NSO)** under the Ministry of Statistics and Programme Implementation (MoSPI), the **CPI (Combined)** has a base year of **2012** and is the headline retail inflation gauge. It is the price of a fixed consumption basket faced by households. **Food and beverages carry roughly 45.86% weight**, with food & beverages plus fuel forming the volatile component. The current CPI series merged the older CPI-Industrial Workers (CPI-IW, base 2016, compiled by the Labour Bureau), CPI-Agricultural Labourers (CPI-AL) and CPI-Rural Labourers. Since the **2016 amendment to the RBI Act, 1934 (Section 45ZA)**, CPI (Combined) is the official target variable for monetary policy.

**Wholesale Price Index (WPI):** Compiled by the **Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT)**, base year **2011-12**, the WPI captures prices at the wholesale/producer stage. It has **three groups: Primary Articles (\~22.6%), Fuel & Power (\~13.2%), and Manufactured Products (\~64.2%)**. Crucially, **WPI excludes services entirely**, whereas CPI includes them. WPI is not the policy target but signals input-cost pressure.

## Why the two indices diverge

The CPI and WPI frequently move in opposite directions. WPI is dominated by manufactured goods and global commodity prices (crude, metals); CPI is dominated by food and services. In **2020-21**, WPI briefly turned negative on collapsing oil prices while CPI stayed elevated on food. The gap matters because a candidate must explain *which* inflation the RBI targets and *why food shocks* (a supply phenomenon) drive headline CPI even when core (CPI excluding food and fuel) is stable.

## Allied measures you must know

- **GDP deflator:** the ratio of nominal to real GDP, the broadest price measure, covering all domestically produced goods and services.
- **Core inflation:** CPI excluding food and fuel; the RBI watches it for demand-side, persistent pressure.
- **Headline inflation:** the full CPI basket including volatile food and fuel.
- **Housing index** in CPI uses house rent; it is absent in WPI.

Key distinctions UPSC tests: deflation (falling general prices), disinflation (a falling *rate* of inflation), stagflation (high inflation with stagnant growth and high unemployment, as in the 1970s oil shocks), and skewflation (a price rise in some sectors, typically food, while others are stable) — the last term was popularised in the **Economic Survey 2010-11**.

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