Consider the following statements:

I. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).

II. The WPI does not capture changes in the prices of services, which CPI does.

III. 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?

Solution

Reason for Divergence between WPI and CPI? (Published: Monthly basis) Statement I is correct: In CPI Food group has higher weight of food and beverages which accounts 45.86 per cent (with food at 39.06 per cent, prepared meals at 5.55 per cent and non-alcoholic beverages at 1.26 per cent) as compared to the combined weight of 24.4 per cent (Food articles and Manufactured Food products) in WPI basket. CPI basket consists of services like housing, education, medical care, recreation etc. which are not part of WPI basket. Statement II is correct: CPI covers goods and services items while WPI covers goods only. Statement III is not correct: Reserve Bank of India has adopted CPI (NOT WPI) as its key measure of inflation and to decide on changing the key policy rates.