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With reference to the Wholesale Price Index (WPI), consider the following statements:
The Reserve Bank of India uses the WPI as a key measure of inflation to set monetary and credit policy.
WPI is published by the Ministry of Commerce and Industry quarterly.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
With reference to the Wholesale Price Index (WPI), consider the follo...
- Wholesale Price Index, or WPI, measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses. WPI is unlike the Consumer Price Index (CPI), which tracks the prices of goods and services purchased by consumers. To put it simply, the WPI tracks prices at the factory gate before the retail level.
- The numbers are released by the Economic Advisor in the Ministry of Commerce and Industry monthly. An upward surge in the WPI print indicates inflationary pressure in the economy and vice versa. The quantum of rising in the WPI month after month is used to measure the level of wholesale inflation in the economy. Hence statement 2 is not correct
- Even as the WPI is used as a key measure of inflation in some economies, the RBI no longer uses WPI for policy purposes, including setting repo rates. The central bank currently uses CPI or retail inflation as a key measure of inflation to set the monetary and credit policy. Hence statement 1 is not correct
- With an aim to align the index with the base year of other important economic indicators such as GDP and IIP, the base year was updated to 2011-12 from 2004-05 for the new series of Wholesale Price Index (WPI), effective from April 2017.
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With reference to the Wholesale Price Index (WPI), consider the follo...
Understanding the Wholesale Price Index (WPI)
The Wholesale Price Index (WPI) is an essential indicator used to measure inflation. However, there are some misconceptions regarding its use and publication.
Statement 1: RBI's Use of WPI
- The Reserve Bank of India (RBI) primarily uses the Consumer Price Index (CPI) as the key measure of inflation for setting monetary and credit policy.
- Although WPI provides valuable insights into price changes at the wholesale level, it is not the main indicator for monetary policy decisions by the RBI.
Statement 2: Publication Frequency of WPI
- The WPI is published by the Office of the Economic Adviser, Ministry of Commerce and Industry, but it is released on a weekly basis, not quarterly.
- This frequent publication allows for timely analysis of price trends in the economy.
Conclusion
Since both statements contain inaccuracies:
- Statement 1 is incorrect because the RBI focuses on CPI for monetary policy.
- Statement 2 is incorrect regarding the frequency of WPI publication.
Therefore, the correct answer is option 'D': Neither statement 1 nor 2 is correct.
Understanding these distinctions is crucial for comprehending how inflation is measured and reported in India, especially for competitive examinations like UPSC.
The Wholesale Price Index (WPI) is an essential indicator used to measure inflation. However, there are some misconceptions regarding its use and publication.
Statement 1: RBI's Use of WPI
- The Reserve Bank of India (RBI) primarily uses the Consumer Price Index (CPI) as the key measure of inflation for setting monetary and credit policy.
- Although WPI provides valuable insights into price changes at the wholesale level, it is not the main indicator for monetary policy decisions by the RBI.
Statement 2: Publication Frequency of WPI
- The WPI is published by the Office of the Economic Adviser, Ministry of Commerce and Industry, but it is released on a weekly basis, not quarterly.
- This frequent publication allows for timely analysis of price trends in the economy.
Conclusion
Since both statements contain inaccuracies:
- Statement 1 is incorrect because the RBI focuses on CPI for monetary policy.
- Statement 2 is incorrect regarding the frequency of WPI publication.
Therefore, the correct answer is option 'D': Neither statement 1 nor 2 is correct.
Understanding these distinctions is crucial for comprehending how inflation is measured and reported in India, especially for competitive examinations like UPSC.
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With reference to the Wholesale Price Index (WPI), consider the following statements: The Reserve Bank of India uses the WPI as a key measure of inflation to set monetary and credit policy. WPI is published by the Ministry of Commerce and Industry quarterly. Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?
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