Wholesale inflation eases to 9.8% on softer energy prices
Wholesale Price Index (WPI) inflation eased marginally to 9.8% in July, helped by softer energy prices
The decline in energy costs was partly offset by rising primary articles and manufactured goods prices
Consumer Price Index (CPI)-based retail inflation rose slightly to 4.5% in the same month
Food inflation touched a 19-month high, driven by higher prices of manufactured and primary food items
Projections indicate WPI inflation may fall below 9.5% in the following month
WPI vs CPI — Two Different Inflation Measures
India tracks inflation through two distinct indices that often diverge, as seen when wholesale inflation eases while retail inflation rises. The Wholesale Price Index (WPI) measures price changes at the wholesale/producer level and excludes services, while the Consumer Price Index (CPI) measures prices actually paid by end consumers and includes services.
Key Details
- WPI is compiled by the Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry
- WPI's base year was revised from 2011-12 to 2022-23 in 2026, with the item basket expanded from 697 to 957 items and new categories such as solar, wind, and nuclear electricity added
- CPI (Combined, Rural, Urban) is compiled by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI)
- CPI's base year was revised to 2024 (from 2012) using weights from the Household Consumption Expenditure Survey (HCES) 2023-24, adopting the UN's COICOP 2018 classification; weighted items rose from 299 to 358 at the all-India level
The divergence between an easing WPI (9.8%) and a rising CPI (4.5%) illustrates why India's monetary policy is anchored to CPI, not WPI — wholesale and retail price movements can move in opposite directions due to differing baskets, weights, and the presence/absence of services and taxes.
RBI's Flexible Inflation Targeting (FIT) Framework
Monetary policy in India is governed by a statutory inflation-targeting framework that uses CPI, not WPI, as the target variable — making the CPI print (and its food-price-driven rise here) directly relevant to interest rate decisions, while the WPI move is a producer-side/margin indicator.
Key Details
- Legal basis: Section 45ZA of the RBI Act, 1934 (inserted via the Finance Act, 2016), which requires the Central Government, in consultation with RBI, to fix the inflation target once every five years
- The framework followed the recommendations of the Urjit Patel Committee (2014)
- Target: 4% CPI inflation with a tolerance band of +/-2% (i.e., 2%-6%), retained for successive five-year cycles including 2016-2021, 2021-2026, and 2026-2031
- A "failure" of the Monetary Policy Committee (MPC) is statutorily deemed to occur if inflation remains outside the 2-6% band for three consecutive quarters, triggering a mandatory report to the government
With retail (CPI) inflation at 4.5%, it remains within the RBI's tolerance band, but a food-inflation-driven uptick is the kind of trend the MPC watches closely since food carries a large weight in the CPI basket.
Food Inflation and the Consumer Food Price Index (CFPI)
Food inflation is tracked as a sub-index of CPI — the Consumer Food Price Index (CFPI) — because food items carry the largest single weight in the Indian consumption basket, making them the biggest swing factor in headline retail inflation.
Key Details
- Food and beverages carry the largest weight among CPI sub-groups, historically around 45-46% under the 2012 series (weights were revised downward for processed/manufactured food categories under the 2024 series)
- CFPI covers items such as cereals, pulses, vegetables, fruits, milk, and edible oils
- Volatile components (vegetables, pulses) are frequently the source of short-term spikes, distinct from more persistent "core inflation" (CPI excluding food and fuel)
A 19-month high in food inflation, driven by manufactured and primary food items, is significant because food's outsized CPI weight means it can push headline retail inflation up even when core and wholesale trends are easing.
- WPI inflation: eased to 9.8% in July (from the prior month)
- CPI (retail) inflation: rose to 4.5% in July
- Food inflation: at a 19-month high in July
- RBI's statutory CPI inflation target: 4%, tolerance band 2%-6% (Section 45ZA, RBI Act 1934)
- WPI base year revised: 2011-12 to 2022-23 (new series released June 2026)
- CPI base year revised: 2012 to 2024 (new series released February 2026, based on HCES 2023-24)
- WPI compiling authority: Office of Economic Adviser, DPIIT
- CPI compiling authority: NSO, MoSPI