Inflation: WPI & CPI — Set 14
Economy Advanced · मुद्रास्फीति: WPI और CPI · Questions 131–140 of 141
India's NSO releases CPI data with what reference month lag?
Correct Answer: B. B. 1 month lag
India's NSO releases CPI data with approximately a 1-month lag. For example, June CPI is released in mid-July (around 12th-14th of the month). This relatively quick release enables the RBI's MPC to factor in recent inflation trends in its policy decisions. The WPI is released around the same time by DPIIT, also with a 1-2 month lag.
In India, Minimum Support Prices (MSP) can contribute to inflation because:
Correct Answer: B. B. MSP increases farm income which raises demand and sets a floor for market prices
MSP increases farm income, boosting rural demand. More importantly, by setting a floor price for crops, MSP prevents prices from falling below that level even when supply is abundant. When MSPs are raised significantly each year, they directly contribute to food inflation through procurement prices and by setting expectations for market prices. MSP revisions are closely monitored for inflationary implications.
The 'output gap' measure used by RBI for inflation assessment is positive when:
Correct Answer: B. B. Actual output exceeds potential output — indicating demand-pull inflationary pressure
A positive output gap (actual GDP > potential GDP) indicates the economy is operating above its non-inflationary capacity, with excess aggregate demand creating upward pressure on prices (demand-pull inflation). The RBI monitors the output gap to determine whether current inflation is demand-driven (requires monetary tightening) or supply-driven (requires supply-side policy response).
Which of the following price indices is used for escalation of infrastructure project costs in India?
Correct Answer: B. B. WPI
WPI is widely used for cost escalation clauses in infrastructure contracts in India (roads, power plants, railways). Project costs are typically linked to relevant WPI sub-indices for materials (steel, cement, bitumen) to compensate contractors for cost increases. WPI's commodity coverage makes it appropriate for goods-intensive construction projects.
The term 'inflation differential' between India and the USA matters for:
Correct Answer: B. B. Exchange rate trends — higher India inflation means the rupee tends to depreciate against the dollar
The inflation differential between India and the USA matters for the rupee-dollar exchange rate. Higher inflation in India relative to the USA means India's goods become relatively more expensive, reducing export competitiveness. Under the Purchasing Power Parity theory, the rupee should depreciate against the dollar at a rate approximately equal to the inflation differential. This is observed over long periods.
What does the 'inflation gauge' CPI-AL measure?
Correct Answer: B. B. Consumer Price Index for Agricultural Labourers
CPI-AL stands for Consumer Price Index for Agricultural Labourers. It measures the change in prices of goods and services consumed by agricultural labourers. Published by the Labour Bureau, CPI-AL is used for revising minimum wages of agricultural workers. The base year for CPI-AL is 1986-87 = 100.
When the CPI breaches the 6% upper bound for three consecutive quarters in India, what is the consequence?
Correct Answer: B. B. RBI must write an explanatory report to government under Section 45ZN of the RBI Act
Under Section 45ZN of the RBI Act 1934, if CPI inflation exceeds the upper tolerance band (6%) or falls below the lower band (2%) for three consecutive quarters, the MPC must send a report to the central government explaining the reasons, remedial actions being taken, and the estimated time by which CPI will return to the target. This happened in 2022 when inflation breached 6% for three consecutive quarters.
India's HFCE (private consumption) component in GDP is primarily measured by NSO using:
Correct Answer: B. B. Household Consumer Expenditure Survey
NSO uses the Household Consumer Expenditure Survey (HCES) to estimate the HFCE component of GDP and also to determine CPI weights. The HCES collects detailed data on household spending across food, housing, clothing, education, healthcare, and other items. The current CPI weights are based on 2011-12 HCES, with a new survey conducted in 2022-23.
The 'MPC minutes' published by RBI provide:
Correct Answer: B. B. Detailed reasoning, voting record, and individual views of each MPC member on inflation and rates
The MPC minutes, published 14 days after each MPC meeting, provide detailed reasoning, the voting record (6 members' votes and reasoning), and individual written statements from each member. This transparency allows markets to understand the committee's thinking on inflation, growth, and monetary policy. The minutes provide insight into internal debates and emerging risks to the inflation outlook.
What is 'stagflation'?
Correct Answer: B. B. Stagnant growth with high inflation and high unemployment simultaneously
Stagflation is the simultaneous occurrence of stagnant or negative economic growth, high inflation, and high unemployment. It poses a dilemma for policymakers: monetary tightening to control inflation worsens the recession, while monetary easing to boost growth worsens inflation. The 1970s oil shocks caused classic stagflation in developed economies.