Q. 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? (UPSC Prelims 2020)
Answer: 1 and 2 only
Notes: The correct answer is [A] 1 and 2 only. This question tests the fundamental differences between India’s two primary inflation indices: the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).

• Statement 1 (Correct): The weightage of food in CPI (specifically CPI-Combined) is significantly higher, at approximately 45.86%. In contrast, the weightage of the "Food Articles" and "Manufactured Food Products" group in WPI is much lower, totaling around 24.38%. This is why food price volatility impacts CPI more than WPI.
• Statement 2 (Correct): WPI measures price changes at the wholesale level and only includes goods (commodities). It does not capture the services sector. CPI measures price changes from the perspective of the retail consumer and includes both goods and services (such as education, healthcare, and transport).
• Statement 3 (Incorrect): Historically, the RBI used WPI as its main anchor. However, following the recommendations of the Urjit Patel Committee, the RBI shifted to CPI (Combined) as its key measure of inflation in April 2014. This shift was made because CPI better reflects the cost of living for the general public and includes services.

Key Fact: The Central Statistics Office (CSO) publishes CPI, while the Office of the Economic Adviser (Ministry of Commerce and Industry) publishes WPI. The base year for both indices is currently 2011-12.