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. 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?
Explanation
Statement 1 is correct: In India, food items make up a significant portion of the CPI, around 45%, reflecting the price changes consumers experience. In contrast, the WPI, which tracks wholesale prices, assigns a smaller share to food items, approximately 25-30%. The CPI measures the average change in prices paid by consumers for a basket of goods and services. Food is a significant component of household budgets, especially in developing economies, so it has a substantial weight in the CPI. The WPI, on the other hand, tracks the prices of goods at the wholesale level (i.e., prices received by producers or wholesalers).
Statement 2 is correct: The WPI focuses on measuring price changes in goods at the wholesale level and excludes services. While CPI includes both goods and services, such as healthcare, transportation, and education, which is a major difference between the two indices.
Statement 3 is incorrect: The RBI has not adopted the WPI as its key measure of inflation. The RBI uses the Consumer Price Index (CPI) as its primary gauge of inflation for monetary policy decisions. The CPI is considered a better indicator of the price pressures faced by consumers, which is what the RBI is most concerned about when setting interest rates.