With reference to the Wholesale Price Index (WPI), consider the following statements: 1. The Reserve Bank of India (RBI) uses WPI as a key measure of inflation to set monetary and credit policy. 2. High WPI inflation leads to higher interest rates in an economy. Which of the statement(s) given above is/are correct? |ForumIAS

Q. With reference to the Wholesale Price Index (WPI), consider the following statements:
1.The Reserve Bank of India (RBI) uses WPI as a key measure of inflation to set monetary and credit policy.
2.High WPI inflation leads to higher interest rates in an economy.
Which of the statement(s) given above is/are correct?

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: B

Notes:

Explanations –

Statement 1 is incorrect. The Reserve Bank of India (RBI) primarily uses the Consumer Price Index (CPI) as the key measure of inflation to set monetary and credit policy.

Statement 2 is correct. High WPI inflation can signal increasing prices at the wholesale level, which may contribute to overall inflationary pressures. If these pressures spill over into consumer prices (CPI), it may prompt the RBI to consider raising interest rates to control inflation.

Source: The Hindu

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