Question

Consider the following statements:

1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).

2. The WPI does not capture changes in the prices of services, which CPI does.

3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 only

(c) 3 only 4,

(d) 1, 2 and 3

Answer 1

Correct option is (a) 1 and 2 only

Under the new monetary policy Framework effective since 2016, RBI tries to control inflation at 2-6% of CPI (All India). So, 3 is wrong. Option c and d eliminated. In both (a & b) the options, statement 2 is common so we have to accept 2 as correct, Even without checking. Everything boils down to whether statement 1 is correct or not?

Both WPI and CPI are based on Laspeyres formula wherein weightage is assigned to multiple commodities and their prices are tracked. The weight of an individual commodity depends on how frequently it is bought by the consumer. So obviously consumer price index would be giving more weightage to the food products compared to WPI which is aimed at the manufacturers. So, 1 should be correct.