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
- D.1, 2 and 3
Correct answer
Explanation
The correct answer is A, 1 and 2 only. Statement 3 is wrong because the RBI uses CPI, not WPI, as its main measure of inflation.
Food has a much larger weight in the CPI, close to half of the basket, than in the WPI, where food articles and manufactured food together form roughly a quarter. The WPI tracks the prices of goods at the wholesale stage only, so it leaves out services such as transport, health, education and housing. The CPI measures what households pay at retail, so it includes services. On the Urjit Patel Committee's advice, the RBI moved to CPI-Combined as its key inflation measure, and flexible inflation targeting now sets a CPI target of 4% with a band of 2 to 6%.
B is wrong because statement 1 is also true. C is wrong because statement 3 is false. D is wrong because it includes the false statement 3.
Exam tip: RBI targets CPI-Combined at 4% (±2%); WPI covers goods only, no services.
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