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 WTI does not capture changes irt, the prices of services, which CPI does. 3. Reserve Bank of India has now

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Q: (IAS/2020)
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 WTI does not capture changes irt, 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 ?

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,171,60,171,29,12,19

keywords: 

{'cpi': [0, 0, 0, 1], 'consumer price index': [0, 0, 1, 2], 'inflation': [0, 1, 0, 3], 'key policy rates': [0, 0, 0, 1], 'wholesale price index': [0, 0, 5, 1], 'wti': [0, 0, 0, 1], 'weightage': [0, 0, 1, 1], 'wpi': [0, 0, 4, 1], 'prices': [0, 5, 4, 14], 'reserve bank': [1, 0, 3, 4]}

The correct answer is (a) 1 and 2 only.

Explanation:

The weightage of food in CPI is higher than that in WPI. CPI is based on the prices of goods and services that households purchase, while WPI is based on the prices of goods that businesses purchase from other businesses. The weightage of food in CPI is about 45%, while in WPI it is about 15%.

WPI does not capture changes in the prices of services, which CPI does. Services account for a larger share of the economy than goods, and hence, CPI is considered a better indicator of overall inflation in the economy.

Reserve Bank of India uses CPI as its key measure of inflation, not WPI. RBI has been targeting CPI inflation since 2016, and it is the key factor that determines RBI`s monetary policy stance.