How Inflation Is Calculated? CPI, WPI & Key Components

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Last Updated: 16th December 2025 - 01:37 pm

Tracking how inflation is calculated is important to any individual, group, government or organisation that wishes to monitor price fluctuations in the economy as well as protect their own savings. Inflation, the movement of prices for goods and services over time, is measured by the most commonly used methods, the Consumer Price Index (CPI) and the Wholesale Price Index (WPI), which reflect differing sectors of the economy.


CPI calculation focuses on the prices consumers pay for a basket of essential items, such as food, clothing, transportation, and housing. By comparing the total cost of this basket over different periods, the CPI shows how the cost of living changes. On the other hand, WPI inflation calculation looks at wholesale prices, helping businesses and policymakers understand cost trends before they reach consumers. Using these indices, inflation measurement becomes systematic and reliable.


Calculating inflation correctly is not just about the numbers; it is also about planning for future investments, adjusting your income expectations, and making sound decisions regarding borrowing and/or spending. The key to maintaining financial strategy effectiveness as prices increase is to monitor both the Consumer Price Index (CPI) and Wholesale Price Index (WPI) trends.
 

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