[Solved] Consider the following statements: 1. The weightage of food in Consumer price Index (CPI) is higher than in Wholesale price Index (WPI). 2. The WPI does not capture changes in the prices of services, which CPI does. 3. The 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 are correct?

Q77.Consider the following statements:

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

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

3. The 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 are correct?

A. 1 and 2 only

B. 2 only

C. 3 only

D. 1, 2 and 3

Answer: A

Any inflation rate essentially tells us the rate at which prices have been rising in an economy. As such, an inflation rate is expressed as a percentage.

The government comes out with two indices — one for mapping inflation in the wholesale market and one for mapping inflation in the retail market. Inflation rates are also

calculated for rural and urban markets for better policy analysis.

The two most-often used inflation rates in the country are the year-on-year

the wholesale price index (WPI) based inflation rate and

the consumer price index (CPI) based inflation rate

The former is called the wholesale inflation rate and the latter is called the retail inflation rate. Both WPI and CPI are price indices.

In other words, these are two different baskets of goods and services.

The government assigns different weights to different goods and services based on what is relevant for those two types of consumers.

Composition of Wholesale Price Index

Composition of Consumer Price Index

The CPI-based inflation data is compiled by the Ministry of Statistics and Programme Implementation (or MoSPI) and the WPI-based inflation data is put together by the Department for Promotion of Industry and Internal Trade (or DPIIT).

A key difference that must not be missed is that the WPI does not take into account the change in prices of services, but CPI does.

The Urjit Patel committee’s recommendations call for India’s monetary policy (MP) to be developed with reference to CPI-based inflation rather than WPI-based inflation. (The suggestion was approved back in 2014.)

The following is why:

WPI displays the wholesale price, whereas CPI reveals the retail price, or the price at which people make purchases from the retail market.

CPI illustrates the impact on the populace. The effects of inflation on people are not shown by the WPI.

Any policy should take the effects on people into account.

WPI does not take into account the cost of services.

The majority of nations have switched to CPI; it is considered to be best practise globally.