Differences between CPI and WPI
Question
Consider the following statements: Which of the statements given above is/are correct?
- 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.
Options
1 and 2 only
2 only
3 only
1, 2 and 3
Explanation
Food articles carry a much higher weightage in the CPI (approx 45%) compared to the WPI (approx 24%) (Statement 1 is correct). The WPI basket only includes goods, whereas the CPI includes both goods and services like housing, education, and health (Statement 2 is correct). In 2014, based on the Urjit Patel Committee report, the RBI formally adopted the CPI (not WPI) as the key measure for inflation targeting (Statement 3 is incorrect). > One-line conceptual takeaway: CPI serves as the RBI's inflation anchor because it heavily weights retail food prices and includes services, accurately reflecting consumer realities. Answer: (a).
Question details
Year
2020
Paper
GS Paper 1
Question
Q67
Subject
Economy
Sub-topic
Monetary Policy & Inflation
Type
Statement-based
Difficulty
Easy
Nature
Static
Source hint
NCERT Macroeconomics / RBI framework
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