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 ✓ UPSC's answer
- (b) 2 only
- (c) 3 only
- (d) 1, 2 and 3
Why the answer is (a)
• Statement 1 is correct: food and beverages carry about 45.9% weight in CPI (Combined) versus roughly 24% for primary food articles and food products in WPI.
• Statement 2 is correct: WPI covers only goods traded in bulk; CPI includes services such as housing, education, health and transport.
• Statement 3 is wrong: since the 2016 monetary policy framework, the RBI targets CPI (Combined) inflation at 4% ± 2%, not WPI.
• Hence 1 and 2 only, option (a).
Why the other options are wrong
- (b) 2 only
- Statement 1 is also correct: CPI food weight exceeds WPI's.
- (c) 3 only
- Statement 3 is wrong: RBI targets CPI, not WPI.
- (d) 1, 2 and 3
- Statement 3 is wrong.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2020, held on 4 October 2020. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.