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Q100 (CDS-I/2017) Economy › Money, Banking & Inflation › Inflation measurement Answer Verified

Which one of the following indices is now used by the Reserve Bank of India to measure the rate of inflation in India?

Result
Your answer: —  Â·  Correct: C
Explanation

The Reserve Bank of India (RBI) currently uses the Consumer Price Index (CPI) - Combined as its primary measure of inflation for monetary policy decisions. Historically, the Wholesale Price Index (WPI) was the headline measure [2]. However, following the recommendations of the Urjit Patel Committee in 2014, the RBI shifted to a flexible inflation-targeting framework using CPI [1]. This shift occurred because CPI better reflects retail price pressures faced by consumers and includes the service sector, which WPI excludes. Under the RBI Act 1934, the government, in consultation with the RBI, sets a CPI-based inflation target (currently 4% with a +/- 2% band) [2]. The Monetary Policy Committee (MPC) now determines policy rates based on this CPI target to ensure price stability [2]. While WPI is still tracked for industrial and producer-level trends, it is no longer the key anchor for the RBI's policy rates [1].

Sources

  1. [1] https://www.rba.gov.au/publications/bulletin/2014/sep/pdf/bu-0914-5.pdf
  2. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.13 Monetary Policy > p. 60
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