UPSC Prelims 2020 – Question 67

Q67. Consider the following statements:

1. The weightage of food in Consumer The 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 the CPI does.
3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to change the
   key policy rates.

Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 only
(c) 3 only
(d) 1, 2 and 3

Answer: A

• Statement 1 is correct: The weightage of items in CPI is based on average household expenditure taken from consumer expenditure surveys. The weightage of food in CPI is far higher (approx. 46%) than in WPI (approx. 24%). A significant proportion of the WPI items basket represents manufacturing inputs and intermediate goods like minerals, basic metals, machinery, etc.
• Statement 2 is correct: CPI captures the changes in price levels of both goods and services. However, WPI only captures changes in goods and not in services.
• Statement 3 is not correct: In April 2014, the RBI adopted the CPI or retail inflation as a key measure of inflation to set the monetary and credit policy

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