Easing Inflation: What Falling CPI and WPI Mean for the Indian Economy

✍️ By Suryavanshi IAS | Updated: July 2025

🧾 Context: Why Is This in the News?

In June 2025:

Retail Inflation (CPI) dropped to 2.1%, a 77-month low.
Wholesale Inflation (WPI) showed a deflation of -0.13%, first time in 20 months.
Food prices, especially vegetables, pulses, spices, and meat, saw deflation.
Fuel prices (especially crude oil) also dropped, impacting both CPI and WPI.

These developments are key for UPSC aspirants as they reflect macroeconomic trends, inflation control, and fiscal/monetary policy outcomes.

🔍 What is Inflation?

Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Example: If vegetable prices rise from ₹100 to ₹110 in a month, inflation is 10% for that period.

🧾 Key Terms Explained (with Examples)

1. ✅ Consumer Price Index (CPI)

CPI measures retail inflation — i.e., the average change over time in the prices paid by consumers for a market basket of goods and services.

Published by: Ministry of Statistics and Programme Implementation (MoSPI)
Base year (as of 2025): 2012
Example: If the CPI rises from 150 to 153 in a month, inflation = 2%.

🧠 CPI includes: Food, beverages, housing, clothing, fuel, transport, etc.

2. ✅ Wholesale Price Index (WPI)

WPI measures price changes at the wholesale level — between businesses before retail sale.

Published by: Office of the Economic Adviser, Ministry of Commerce and Industry.
Base year: 2011-12
Example: If the wholesale price of petrol drops by 10%, it lowers WPI.

💡 Note: WPI does not include services, unlike CPI.

3. ✅ Core Inflation

Inflation excluding food and fuel prices, which are volatile.

Helps the RBI focus on long-term inflation trends.
Example: If CPI is 5% but core inflation is 3%, the rise is largely due to food/fuel.

4. ✅ Deflation

A negative inflation rate; general fall in prices.

Example: WPI at -0.13% means on average, wholesale prices fell.

5. ✅ Base Effect

When current inflation is compared to an unusually high/low base from the previous year, creating distorted % changes.

Example: If fuel prices were -3.6% last year and 2.5% this year, the increase appears sharp due to a low base.

📊 Key Data (June 2025)

Indicator	Value
CPI (Retail Inflation)	2.1%
WPI (Wholesale Inflation)	-0.13%
Food Inflation (CPI)	-0.2%
Food Articles (WPI)	-3.75%
Crude Petroleum & Natural Gas (WPI)	-12.3%

📚 UPSC Syllabus Linkage

Paper	Relevance
GS Paper III	Indian Economy, Growth, Inflation, Indexes
Prelims	Economic Concepts, Reports, Indexes

📜 Previous Year UPSC Questions

🔹 Prelims 2020

Q. With reference to the Indian economy, consider the following statements:

Commercial Paper is a short-term unsecured promissory note.
‘Core Inflation’ excludes food and fuel prices.
WPI is used by RBI for inflation targeting.

Which of the above are correct?
A) 1 and 2 only ✅
B) 2 and 3 only
C) 1 and 3 only
D) All of the above

📝 Explanation: Statement 3 is incorrect; RBI uses CPI for inflation targeting.

🔹 Mains (GS Paper III – 2021)

Q. “Inflation targeting in India is primarily based on the Consumer Price Index (CPI). Examine how changes in CPI and WPI impact policy decisions in India.”

Points to cover in answer:

CPI as basis for monetary policy.
Impact on repo rates.
Role of RBI & MPC.
WPI's effect on business input costs.
Comparison during high/low inflation.

📌 Why Has Inflation Fallen?

✅ 1. Food Deflation

Veggies, pulses, spices fell in price.
Good harvests, stable supply chains.

✅ 2. Global Crude Oil Drop

Eased fuel and transport prices.
Helped lower WPI sharply.

✅ 3. Base Effect

Last year’s high inflation (e.g., 8.4% in June 2024) made current drop appear sharper.

🧭 Implications for Policymakers & UPSC Mains

Stakeholder	Impact
RBI	Likely to pause or reduce repo rates.
Consumers	Lower inflation = more purchasing power.
Farmers	Deflation may reduce farm income (especially in perishables).
Government	Room to continue capex without overheating the economy.

🧠 Ethical & Governance Angle (GS IV/GS II)

Should we celebrate deflation if farmers earn less?
How to balance fiscal policy to protect producers and consumers?

📝 Practice Questions for UPSC

🔹 Prelims Practice MCQ:

Q. Consider the following:

CPI includes food, fuel, and services.
WPI excludes services.
RBI uses WPI for inflation targeting.

Which of the above statements are correct?

A) 1 and 2 only ✅
B) 2 and 3 only
C) 1 and 3 only
D) All of the above

🔹 Mains Practice (GS III):

Q. “India’s recent inflation moderation has been driven more by global factors than structural reforms.” Critically examine in the context of CPI and WPI trends.

🧾 Conclusion by Suryavanshi IAS

Falling inflation is a welcome development, but it needs to be sustainable. While easing prices provide relief to consumers, policymakers must ensure that deflation doesn’t hurt producers, especially in agriculture.

Inflation is not just a number — it’s a balance between growth, equity, and economic confidence.

Suryavanshi IAS

Monday, July 14, 2025

India’s Inflation at 77-Month Low: Decoding the June 2025 CPI-WPI Trend