EconomicsCBSE Class 11 · Index Numbers

CPI, WPI and IIP, Inflation Rate and Real Wages

Updated 17 October 2026 · Fact-checked

The Consumer Price Index (CPI) measures changes in the retail prices of a basket bought by consumers; the Wholesale Price Index (WPI) measures changes in wholesale prices of goods; the Index of Industrial Production (IIP) measures changes in the volume of industrial output. Inflation rate = (current index - previous index)/previous index x 100; real wage = money wage / price index x 100.

CPI tracks retail prices, WPI wholesale goods prices and IIP output volume; inflation is the percentage change in an index, and real wage is wage divided by CPI

Illustration drawn for QuestionBuddy.

Understand CPI, WPI, IIP, Inflation and Real Wages

Consumer Price Index (CPI). Measures the change in the retail prices of a fixed basket of goods and services bought by a specified group of consumers (for example industrial workers, urban non-manual employees, agricultural labourers). Weights are the shares of items in the group's expenditure, found by a family budget survey; it is a weighted average of price relatives. Uses: measuring inflation, revising wages and dearness allowance, and deflating money values.

Wholesale Price Index (WPI). Measures the change in the average price level of goods traded in wholesale markets, not what consumers pay; covers commodities (primary articles, fuel, manufactured products); does not include services. Used to watch price changes at the producer level and in the economy.

Index of Industrial Production (IIP). A quantity index: measures changes in the volume of production of industrial products (mining, manufacturing, electricity) with weights for importance; shows the pace of industrial activity.

Comparison. CPI: retail prices, consumer basket. WPI: wholesale prices, goods only. IIP: output volume, industry.

Inflation rate. Percentage rise in the price level: inflation = (Index_t − Index_(t−1)) ÷ Index_(t−1) × 100. Example: CPI 150 → 159: (159 − 150) ÷ 150 × 100 = 6 per cent. CPI 120 → 132 gives 10 per cent.

Real wage (deflating). Real wage = (money wage ÷ price index) × 100. A money wage of Rs 18,000 when the CPI is 150 (base 100) is worth 18,000 ÷ 150 × 100 = Rs 12,000 in base-year prices. Money wages rise with inflation but real wages may not. Similarly cost-of-living adjustment: a base income of Rs 8,000 must rise to 8,000 × 125 ÷ 100 = Rs 10,000 at index 125 to buy the same basket.

IIP growth. Growth = (IIP_t − IIP_(t−1)) ÷ IIP_(t−1) × 100: from 180 to 195 is 8.33 per cent.

Uses of index numbers. Show trends; measure inflation; adjust wages and pensions; help policy; compare costs across places; deflate values.

Problems in construction. Choice of base year and items, availability and quality of price data, weights may become outdated, changes in the quality of goods, and use of different formulas affect results. Indices are approximate.

Flow chart: prices collected → relatives → weights → index → inflation rate → real wage.

CPI, WPI, IIP, Inflation and Real Wages: key facts

Inflation rate: (Index now - Index before) / Index before x 100; Per cent
Real wage: Money wage / price index x 100; Deflating
CPI: Weighted average of price relatives; Consumer basket
IIP growth: (IIP now - IIP before) / IIP before x 100; Output volume

How to answer CPI, WPI, IIP, Inflation and Real Wages questions

Questions ask for inflation, real wage or which index fits a purpose.

1Choose the index: retail prices CPI; wholesale prices WPI; output IIP.
2For inflation, divide the change by the earlier index.
3For real wage, divide money wage by index and multiply by 100.
4Compare real wages across periods.
5Mention a limitation if asked.

CPI, WPI, IIP, Inflation and Real Wages in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Salary revision

Suppose a worker gets Rs 18,000 when the CPI is 150, and next year Rs 19,500 when CPI is 165 (base 100).

Did real income rise?

Try it first, then show the solutionSolution

Real wage then = 18,000 / 150 x 100 = Rs 12,000.
Real wage later = 19,500 / 165 x 100 = Rs 11,818.
Real income fell despite the higher money wage.

Answer: Real wage fell from Rs 12,000 to Rs 11,818.

Memory hook: Money up, real down.

Tricks to remember CPI, WPI, IIP, Inflation and Real Wages

Short memory aids. Say each one aloud once, then use it on a question the same day.

C-Consumer, W-Wholesale, I-Industry
CPI retail, WPI wholesale, IIP output.
Use it when: Indices
Change over before
Inflation = change over the earlier index.
Use it when: Inflation
Deflate by dividing
Real = money / index x 100.
Use it when: Real wage

CPI, WPI, IIP, Inflation and Real Wages: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Difference · 2 marks · Very short answerBoard level

State two differences between CPI and WPI.

Try it first, then show the solutionSolution

CPI measures retail prices paid by consumers; WPI measures wholesale prices (1 mark).
CPI includes services in the consumption basket; WPI includes goods only (1 mark).

Answer: Retail versus wholesale; services included versus not.

Example 2: Inflation rate · 3 marks · Short answerBoard level

The CPI was 150 last year and 159 this year. Find the inflation rate. If it had been 132 after 120, what would be the rate?

Try it first, then show the solutionSolution

Rate = (159 - 150)/150 x 100 (1 mark).
= 6 per cent (1 mark).
(132 - 120)/120 x 100 = 10 per cent (1 mark).

Answer: 6 per cent; 10 per cent.

Example 3: Real wage · 4 marks · Short answerHarder board level

Money wage Rs 18,000 and CPI 150 (base 100). Find the real wage. If the CPI rises to 180 and the wage to Rs 21,000, compare real wages.

Try it first, then show the solutionSolution

Real wage = 18,000/150 x 100 = Rs 12,000 (1 mark).
Later real wage = 21,000/180 x 100 = Rs 11,667 (1 mark).
Money wage rose by 16.7 per cent but real wage fell (1 mark).
Prices rose faster than the wage: CPI up 20 per cent (1 mark).

Answer: 12,000 then 11,667; real wage fell.

Example 4: Cost of living · 3 marks · Short answerHarder board level

A worker earns Rs 8,000 when the index is 100. If the index becomes 125, how much must the wage be to maintain the same standard of living? What would a wage of Rs 9,000 mean in real terms?

Try it first, then show the solutionSolution

Required wage = 8,000 x 125/100 = Rs 10,000 (1 mark).
Real value of Rs 9,000 = 9,000/125 x 100 = Rs 7,200 (1 mark).
So the worker is worse off by Rs 800 in base prices (1 mark).

Answer: Rs 10,000 needed; Rs 9,000 is worth Rs 7,200.

Example 5: Which index · 5 marks · Long answerHOTS / competency

Choose the best index for each: (a) revising a factory worker's dearness allowance (b) tracking the growth of factory output (c) watching the cost pressure on producers. Explain two limitations of any price index.

Try it first, then show the solutionSolution

(a) CPI for industrial workers (1 mark).
(b) IIP (1 mark).
(c) WPI (1 mark).
Limitation: base year and weights become outdated (1 mark).
Limitation: quality changes and different formulas make the measure approximate (1 mark).

Answer: CPI; IIP; WPI; indices are approximate.

Where students lose marks in CPI, WPI, IIP, Inflation and Real Wages

The slips examiners see most often, and what to write instead.

Mistake: Inflation over later index
Denominator error.
Wrong working
Inflation = change / current index.
Right working
Divide by the earlier index.
Do this: Earlier.
Usually costs: 1 mark.
Mistake: Real wage multiplied by index
Direction reversed.
Wrong working
Real wage = money wage x index/100.
Right working
Real wage = money wage / index x 100.
Do this: Divide.
Usually costs: 1 mark.
Mistake: WPI includes services
Scope error.
Wrong working
WPI covers services.
Right working
WPI covers goods only.
Do this: Goods.
Usually costs: 1 mark.

Exam tips

Always give the formula.
Show the denominator clearly.
Compare real values, not money values.
Match the index to the purpose.

Practice questions on CPI, WPI, IIP, Inflation and Real Wages

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
The index measuring changes in volume of industrial output is
(a) CPI (b) WPI (c) IIP (d) GDP deflator
Hint
Quantity index.
Answer
(c).
Q2 · 1 mark · Assertion-reasonHarder board level
Assertion (A): CPI is used to revise dearness allowance.
Reason (R): It measures the change in prices of the consumer basket.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.
Hint
Cost of living.
Answer
(a).
Q3 · 2 marks · Very short answerBoard level
Find the inflation rate if the price index rises from 125 to 140.
Hint
Change over earlier.
Answer
(140 - 125)/125 x 100 = 12 per cent.
Q4 · 4 marks · Case-basedHarder board level
Read and answer.
Suppose IIP was 180 in one year and 195 the next, and CPI was 120 then 132.
(a) Find IIP growth. (1)
(b) Find inflation. (1)
(c) Compare. (2)
Hint
Two rates.
Answer
(a) (195 - 180)/180 x 100 = 8.33 per cent. (b) (132 - 120)/120 x 100 = 10 per cent. (c) Output grew 8.33 per cent while prices rose 10 per cent, so price rise slightly outpaced output growth.
Q5 · 3 marks · Short answerHOTS / competency
Suppose a pension of Rs 15,000 is not revised while the CPI rises from 100 to 125. Find the real value and the percentage fall in purchasing power and suggest a remedy.
Hint
Deflate.
Answer
Real value = 15,000/125 x 100 = Rs 12,000, a fall of 3,000, i.e. 20 per cent. The remedy is to link the pension to the CPI through dearness relief.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Inflation formula?Show answer
Change in index over earlier index x 100.
2.Real wage formula?Show answer
Money wage / index x 100.
3.CPI measures?Show answer
Retail prices.
4.IIP measures?Show answer
Industrial output.
5.WPI excludes?Show answer
Services.
6.Uses of CPI?Show answer
Wages, inflation.

CPI, WPI, IIP, Inflation and Real Wages: frequently asked questions

What is CPI?

A retail price index for a consumer basket.

What is WPI?

A wholesale price index of goods.

What is IIP?

An index of industrial production volume.

What is a real wage?

Money wage adjusted for price change.

What is dearness allowance?

Pay supplement linked to the price index.