Which of the following statements is/are incorrect about Wholesale Price Index (WPI) and the Consumer Price Index (CPI)?
1. Both follow the same base year, 2011-12.
2. CPI is released by the Office of Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT).
3. In consumer’s basket, food has a much less weightage than in the wholesale basket.
Select the correct answer using the code given below:
2 only
1 and 3 only
2 and 3 only
1, 2 and 3
India calculates its inflation on two price indices, i.e., the Wholesale Price Index (WPI) and the Consumer Price Index (CPI). While the WPI-inflation is used at the macro-level policymaking, the CPI-inflation is used for micro-level analyses. The inflation at the WPI is the inflation of the economy.
Both the indices follow the ‘point-to-point’ method and may be shown in points (i.e., digits), as well as in percentage relative to a particular base year.
WPI:
• Based on 676 commodities
• Estimated by the Office of Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT).
• Measured on a monthly basis, but with a lag of 14 days.
• Base year is 2011-12.
|
Major Group/ Group |
Weight |
No. of items |
||
|
2004-05 |
2011-12 |
2004-05 |
2001-12 |
|
|
All Commodities |
100.00 |
100.00 |
676 |
697 |
|
Primary Articles |
20.12 |
22.62 |
102 |
117 |
|
Fuel & Power |
14.91 |
13.15 |
19 |
16 |
|
Manufactured Products |
64.97 |
64.23 |
555 |
564 |
· The advantage of the WPI is that it covers more goods. It is available with relatively small time lag of fortnight. It is convenient to compile.
· Disadvantages are that it does not include services, like transport, health, education, etc.
CPI
· CPI is released by the National Statistical Office (NSO).
. The base year of CPI is 2012.
What is the reason behind this divergence?
· There have been more than a few times when this gap in CPI and WPI has been witnessed. There is a host of reasons for it, which includes the difference in weightage assigned to different goods/items that make up the two baskets.
· For example, in the consumer’s basket, food has a much higher weightage than in the wholesale basket. This essentially means a rise in food prices will cause a bigger spike in the CPI basket, than in the WPI one.
· Similarly, manufactured goods are given more weightage in the wholesale basket. Therefore, any movement in the price of such items will move the WPI more than it does the CPI.
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