Consumer and Wholesale Price Indices in India

A price index number measures the relative change in the price of a basket of goods between a current year and a base year, expressed as a percentage.

The Consumer Price Index (CPI) is specifically designed to measure the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Inflation rates in India are usually quoted as changes in the Wholesale Price Index (WPI), for all commodities.

The Wholesale Price Index (WPI) is the price of a representative basket of wholesale goods.

The Consumer Price Index is widely used as a measure of inflation and is often referred to as the cost of living index because it tracks the price changes of goods and services that households consume.

In India, the Labour Bureau, which is part of the Ministry of Labour and Employment, is responsible for compiling and publishing the CPI for industrial workers and agricultural/rural labourers.

The CPI for Urban Non-Manual Employees (CPI-UNME) was historically compiled and published by the Central Statistical Office (CSO) before being replaced by the new CPI series.

To neutralize inflation, the salary must increase proportionally to the CPI. The ratio of the new CPI to the old CPI is 195/150 = 1.3. Multiplying the original salary of 40,000 by 1.3 gives 52,000, which is an increase of 12,000.

A CPI of 526 with a base year of 1982 means that a basket of goods costing 100 in 1982 would cost 526 in 2005. This index represents the relative change in the cost of a fixed basket of goods over time.

The salary increase is proportional to the CPI increase. The ratio of salaries is 40,000 / 25,000 = 1.6. Multiplying the base CPI of 150 by 1.6 gives 240.