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Q37 (IAS/2020) Economy › Money, Banking & Inflation › Inflation measurement Official Key

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 given above is/are correct ?

Result
Your answer: —  ·  Correct: A
Explanation

The correct answer is Option 1 (1 and 2 only) based on the following structural differences between the two indices:

  • Statement 1 is correct: Food items have a significantly higher weightage in the CPI (approximately 45.86%) compared to the WPI (approximately 24.38%). This makes CPI more sensitive to fluctuations in food prices, reflecting the consumption patterns of households.
  • Statement 2 is correct: The WPI only tracks the prices of goods at the wholesale level (Manufactured Products, Primary Articles, and Fuel). In contrast, the CPI measures the price changes of both goods and services (such as education, healthcare, and transport), providing a broader reflection of the cost of living.
  • Statement 3 is incorrect: Since 2014, following the Urjit Patel Committee recommendations, the RBI adopted CPI (Combined) as its primary anchor for monetary policy and inflation targeting, replacing the WPI.

Therefore, only statements 1 and 2 accurately describe the technical differences and current policy framework in India.

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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. Consider the following statements : 1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (…
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 5/10 · 5/10
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This is a 'Sitter' from the Core Economy module. The shift from WPI to CPI by the RBI (Urjit Patel Committee) is a landmark event in Indian economic history, not a fleeting current affair. If you missed this, your static foundation (NCERT/Standard Books) has critical gaps.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Is the percentage weight of food in India's Consumer Price Index (CPI) higher than the percentage weight of food in India's Wholesale Price Index (WPI) as of 2020?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > CPI FOOD INDEX > p. 68
Presence: 5/5
“Basis | WPI | CPI (Combined) • Base year | 2011 - 12 | 2012 • No. of commodities | 697 products | 200 weighted items • Whether includes services or not? | WPI takes into account only goods. | CPI takes into accounts both goods and services. • Weight of food products | Food items have lesser weights in WPI (around 22%) | Food items have greater weight in CPI (around 46%) • Stage of production | WPI measures inflation at each stage of production. Based on the above points, it can be said that CPI is a better measure of inflation as compared to WPI and is more reliable for monetary policy decisions.”
Why this source?
  • Explicit comparison table showing food items have greater weight in CPI (around 46%) and lesser weight in WPI (around 22%).
  • Directly states CPI food weight is substantially higher than WPI food weight, supporting the comparative claim.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1. Consumer Price Index (CPI): > p. 31
Presence: 5/5
“The weights in the CPI basket for different items are assigned based on the expenditure made by the retail people on those items. And these weights are assigned once during the base year and then it remains fixed till the base year gets revised. 'Food and beverages' have the highest weight of 45.86% in CPI combined. Hence any fluctuation in food items impacts the CPI in a major way. CPI includes the impact of indirect taxes. Consumer Food Price Index (CFPI): CFPI measures the change in retail prices of food items consumed by the population. It is also released monthly for rural, urban and combined (all India basis).”
Why this source?
  • Gives a precise CPI (combined) weight for 'Food and beverages' as 45.86%, a high share of the CPI basket.
  • This high CPI food weight supports the assertion that CPI's food share exceeds typical WPI food shares.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 2. Wholesale Price Index (WPI): > p. 32
Presence: 5/5
“The present base year for WPI is 2011-12. The weight of food articles in WPI is 24.4%”
Why this source?
  • Provides the WPI food articles weight as 24.4%, substantially lower than the CPI food weight.
  • Numeric WPI weight allows a direct numeric comparison with CPI food weights cited elsewhere.
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