Consider the following statements:
- The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
- The WPI does not capture changes in the prices of services, which CPI does.
- 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 is/are correct?
- 1 and 2 only
- 2 only
- 3 only
- 1, 2 and 3
Explanation
Statement 1 is correct
- Food accounts for 45.9% of the weight in the Consumer Price Index (CPI-Combined), compared to 24.4% in the Wholesale Price Index (WPI).
Statement 2 is correct
- The two indices also differ in including non-tradable services such as health, education, recreation, and amusement. While the WPI excludes services completely, services comprise 28.32 per cent of the CPI.
Statement 3 is incorrect
- The Reserve Bank of India (RBI) has adopted the Consumer Price Index (CPI) (combined) as the key measure of inflation. Earlier, the RBI had given more weightage to the Wholesale Price Index (WPI) than the CPI as the key measure of inflation for all policy purposes. It was one of the recommendations of the Urjit R. Patel Committee.
