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?

The correct answer is A (1 and 2 only). Statements 1 and 2 are true, and statement 3 is false.

• Statement 1 is correct. Food carries a much larger weight in CPI (about 46 per cent in the combined series) than in WPI, where primary and manufactured food together form a smaller share.
• Statement 2 is correct. WPI covers only goods (primary articles, fuel and power, manufactured products). Services such as health, education and transport are captured in CPI, not WPI.
• Statement 3 is wrong. RBI moved to CPI (combined) as its key inflation measure after the 2016 Urjit Patel Committee recommendations, under the flexible inflation targeting framework with a 4 per cent target and a band of plus or minus 2 per cent. WPI is not the anchor for policy rate decisions.

The core concept is the difference between producer-level and consumer-level price indices and why the policy anchor matters. For Mains GS-3 (Indian economy), be ready to explain why CPI reflects household cost of living better and why food price shocks feed into RBI's inflation outlook.

Trap: Candidates often remember that RBI 'uses an index' and pick WPI because it is older and widely quoted in headlines. Remember that the policy anchor shifted to CPI in 2016.