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UPSC Prelims 2020 Paper-1 📅 04 Oct, 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 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?

A
1 and 2 only
B
2 only
C
3 only
D
1, 2 and 3
Result Summary
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UPSC Prelims
2020 • 04 Oct, 2020 • Paper-1
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?
Correct Answer
1 and 2 only
Weightage Comparison: Food items constitute nearly 46% of the overall basket weight in the Consumer Price Index (CPI-Combined), whereas in the Wholesale Price I......
Ref/Book : UPSC Prelims 2020
Ref. Subject Economy
Chapter -
Ref. Topic Inflation
Pg. No -
💡 Analysis & Explanation
Weightage Comparison ▼
Food items constitute nearly 46% of the overall basket weight in the Consumer Price Index (CPI-Combined), whereas in the Wholesale Price Index (WPI), primary food articles hold a significantly lower weightage (around 15%). Statement 1 is correct.
Scope of Indices ▼
The WPI strictly tracks the wholesale prices of traded physical goods (commodities, fuel, manufactured products) and completely ignores the services sector. Conversely, the CPI measures the retail prices paid by consumers, which comprehensively includes services like housing, education, and medical care. Statement 2 is correct.
Central Bank Policy Shift ▼
Historically, the RBI used the WPI to gauge inflation. However, following the Urjit Patel Committee recommendations in 2014, the RBI officially shifted to using the CPI (Combined) as the sole nominal anchor for setting monetary policy and key interest rates. Statement 3 is entirely false.
Conclusion ▼
Statements 1 and 2 represent accurate economic facts.
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