India's measurement story is different, more consequential, and a favourite of examiners, because India spent decades steering by the wrong index and switched, deliberately and recently, to a better one. The two indices:
- The Wholesale Price Index (WPI). Prices at the wholesale/producer stage, the price of goods as they change hands before retail, published by the Office of the Economic Adviser (Ministry of Commerce & Industry, DPIIT), base year 2011–12. Its defining feature: WPI contains no services at all. Its weights are dominated by manufactured products (~64%), with primary articles (~23%) and fuel & power (~13%). It is essentially a goods, factory-gate price index.
- The Consumer Price Index (CPI, Combined — rural + urban). Retail prices households actually pay, including services, published by the NSO/MOSPI, base 2012. Its defining feature: food & beverages carry ~46% of the weight, the single most important fact about Indian inflation, because it means Indian headline CPI is driven, more than any major economy's, by food prices and therefore by the monsoon, and is far more volatile than US CPI for that structural reason.
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Why did India move from WPI to CPI?
For decades, well into the 2000s, India's headline inflation number was the WPI. It had history (a long back-series), it was available economy-wide and monthly, and it was the number the government and press quoted. But steering monetary policy by WPI has three deep flaws that eventually became untenable: (1) WPI omits services, which are more than half of India's GDP, so it simply cannot see a huge and growing part of the price level; (2) WPI is not what households experience, since a family's cost of living is a retail, services-inclusive concept, so WPI is the wrong target for a central bank whose job is household purchasing power and whose credibility depends on the inflation people feel; and (3) WPI is dominated by globally-traded commodities and fuel, so it swings with world prices and the exchange rate in ways only loosely tied to domestic demand.
The turn came with the Urjit Patel Committee (2014), which recommended that the RBI adopt CPI as the nominal anchor for monetary policy, and India then formally moved to CPI-based flexible inflation targeting around 2015–16 (the RBI Act was amended and the MPC constituted in 2016; the target, from M7.02, is 4% headline CPI ±2%). This is why M7.02 stressed that the RBI targets headline CPI, and now you can see the full logic: India targets headline (not core) CPI precisely because, in an economy where food is 46% of the basket and where inflation expectations are set by the food and fuel prices households see every day, targeting a core measure that excludes food would leave the anchor disconnected from the inflation people actually experience and act on. The RBI's analysts watch core CPI momentum intensely for the underlying trend (exactly as the core inflation page describes), but the RBI is accountable to headline, a deliberate design choice that fits India's structure.
What does the gap between CPI and WPI tell you?
WPI has not vanished; its role changed. Today WPI is read as a gauge of producer/pipeline price pressure and input costs, and because India historically lacked a full official Producer Price Index (a proper PPI has been under development for years; check its status), WPI has partly stood in for one. And here is the piece that pays off directly in equity analysis: the CPI–WPI gap is itself a signal. When WPI runs well above CPI, input/producer costs are rising faster than retail prices: companies are being squeezed and cannot fully pass costs through, a margin-compression warning for goods manufacturers (tie this to the Phase 5 sector work: FMCG, autos, consumer durables). When WPI turns negative while CPI stays positive (as in stretches of 2015, 2020, and 2023), it signals global goods disinflation not reaching the domestic consumer: weak producer pricing power alongside sticky services and food inflation. Reading the two indices against each other tells you something neither tells you alone: where in the supply chain the price pressure is, and who is absorbing it.