What phenomenon is explained with the convergence and divergence between CPI & WPI and how it affects the overall economy
Share
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
CPI measures retail consumption power while WPI essentially focuses on wholesale markets. CPI also includes services which are not part of WPI.
The divergence between the two is mostly because of the difference in the weightage given to the baskets. For instance sometimes due to growing food prices the CPI may change more as the weightage given to it is more. Although there are many other factors too, one of them being base effect. If base effect in CPI is high then it might not grow a lot. Same goes for WPI.
So there is no one single phenomenon but there are multiple factors that play a role.
But what does the convergence show
That’s the other way like if the basket under WPI & CPI is same, weights composition is same then they tend to converge. Also if the users of the commodities like the manufacturer are able to pass on the hike to the consumers then they tend to converge.
Rest Prasad’s explanation is alright.