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 give above is/are correct?

Question

CollectorBabu · Accepted Answer

Correct Answer: 1 and 2 only. WPI reflects the change in average prices for bulk sale of commodities at the first stage of transaction while CPI reflects the average change in prices at retail level paid by the consumer. The prices used for compilation of WPI are collected at ex-factory level for manufactured products, at ex-mine level for mineral products and mandi level for agricultural products. In contrast, retail prices applicable to consumers and collected from various markets are used to compile CPI. Wholesale Price Index, or WPI, measures the changes in the prices of goods only (not services) sold and traded in bulk by wholesale businesses to other businesses. Consumer Price Index (CPI) tracks the prices of goods and services both purchased by consumers (retail level). Hence statement 2 is correct. The reasons for the divergence between the two indices can also be partly attributed to the difference in the weight of the food group in the two baskets. CPI Food group has a weight of 39.1 per cent as compared to the combined weight of 24.4 per cent (Food articles and Manufactured Food products) in WPI basket. Hence Statement 1 is correct. Under Section 45ZA (1) of the RBI Act, 1934, the Central Government determines the inflation target in terms of the Consumer Price Index, once in every five years in consultation with the RBI. This target would be notified in the Official Gazette. Hence RBI has adopted CPI as a key measure of inflation. Hence statement 3 is incorrect.

Contact Information

Services