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In 2025, a noticeable divergence between the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) has prompted a closer examination of how these two measures of inflation present different narratives of the economy. While CPI tracks inflation experienced by consumers at the retail level, WPI reflects price movements faced by producers at the wholesale level.

This divergence raises important questions about how price changes are transmitted across the economy. Before analysing the reasons behind the CPI–WPI divergence, it is useful to first examine the respective trends of CPI and WPI in 2025.

CPI Trends in 2025

CPI data clearly indicate a disinflationary trend in 2025. In January 2025, CPI inflation stood at 4.26%, down from 5.10% a year earlier. Supported by a decline in food and fuel prices, inflation eased further to 3.16% by April 2025. This sustained decline has brought CPI closer to the Reserve Bank of India (RBI)’s target range of 2–6%, providing relief to households that had faced persistent inflationary pressures in previous years.

According to the Ministry of Statistics and Programme Implementation (MoSPI) press release, headline inflation declined to 0.25% in October 2025 from 1.44% in September 2025. However, it marginally increased to 0.71% in November 2025.

Food inflation witnessed a sharp decline to –5.02% in October 2025, largely due to lower vegetable and cereal prices. It marginally increased in November 2025, but remained in the negative territory at –3.91%.This marginal rise in headline and food inflation is attributed to price increases in vegetables, eggs, meat and fish, spices, and fuel and light.

WPI Trends in 2025

In contrast, WPI presents a very different picture. In July and August 2025, WPI inflation stood at –0.3% and –0.2% respectively. As per the Office of the Economic Adviser’s press release, WPI inflation rose to 0.13% in September 2025, marking a shift from the earlier deflationary trend.

However, according to the November press release, wholesale inflation again declined to –0.32%. The fall in November 2025 was mainly driven by lower prices of food articles, mineral oils, crude petroleum and natural gas, manufactured basic metals, and electricity, among others.

Reasons for the Divergence

The data clearly show a divergence between CPI and WPI, making it important to understand the underlying reasons.

One of the primary reasons for this divergence lies in the differences in the composition and weights of the two indices. WPI largely focuses on manufacturing inputs and intermediate goods, whereas CPI assigns higher weights to food and beverages.

The indices also differ in their treatment of services. Services constitute a significant share of CPI but are excluded from WPI. Additionally, petroleum products carry different weights in the two indices.

Weights in the WPI are based on production values, while CPI weights are derived from the consumption expenditure pattern of an average household in the base year.

WPI uses prices of manufactured goods, mining products, and mandi-level prices for agricultural commodities, excluding additional costs such as transportation, excise duties, and customs duties. CPI, on the other hand, captures retail prices paid by consumers.

A closer look at the CPI basket shows its heavy weighting towards food and services, which directly affect consumers. WPI, in contrast, is more heavily weighted towards manufactured goods and commodities and is therefore more sensitive to global price movements.

There is also a transmission lag between changes in wholesale inflation and their reflection in retail inflation. Policy measures often have a quicker impact on consumer prices than on wholesale prices. A recent example is the reduction in GST rates.

Global factors further add to the complexity. Softening global commodity prices, particularly crude oil, helped ease WPI pressures, while CPI remained relatively elevated due to persistent services inflation.

Inflation Divergence and Policy Implications

The divergence between CPI and WPI inevitably raises questions about policy implications. While it is difficult to predict outcomes with certainty, the divergence does have implications for both monetary and fiscal policy.

As CPI inflation moves closer to the RBI’s target range, the central bank may consider easing its monetary stance. However, continued WPI deflation signals weak demand and increased stress on producers, raising concerns about industrial growth. Fiscal policy has also played a role. With the government rationalising subsidies and implementing tax reforms, fiscal measures have had a more direct influence on CPI than on WPI.

At the same time, sustained divergence sends mixed signals to households and investors about the true inflationary environment, potentially undermining policy credibility.

Conclusion

India’s inflation experience in 2025 underscores the importance of analysing both CPI and WPI to gain a comprehensive understanding of the economy. Structural differences, transmission lags, and global influences all contribute to the gap between retail and wholesale inflation. Policymakers must therefore design strategies that address the concerns of both consumers and producers. Importantly, policymaking should not rely solely on CPI, but also consider WPI and core inflation (CPI excluding food and energy components).

The observed divergence highlights the need for investors and households to interpret inflation data carefully, as different indicators reflect different economic conditions. As India’s economy evolves, the gap between CPI and WPI will remain a critical factor in assessing inflation trends, policy direction, and overall economic progress.