Questions on Consumer Price Index (CPI) – New Series (2024)

 

Q1

Assertion (A): The revision of CPI base year improves the accuracy of inflation measurement.

Reason (R): Consumption patterns and expenditure behaviour change over time.

A. Both A and R are true, and R is the correct explanation of A

B. Both A and R are true, but R is NOT the correct explanation of A

C. A is true, R is false

D. A is false, R is true

✅ Answer: A

Explanation:

• CPI revision updates weights ✔

• Driven by changing consumption ✔

• R correctly explains A ✔

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Q2

Assertion (A): Reducing the weight of Food & Beverages makes headline CPI inflation more stable.

Reason (R): Food prices are less sensitive to supply shocks.

A. Both A and R true, R correct explanation

B. Both A and R true, R NOT correct explanation

C. A true, R false

D. A false, R true

✅ Answer: C

Explanation:

• A ✔ (food inflation volatile)

• R ✖ (food prices highly sensitive)

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Q3

Assertion (A): The new CPI series includes prices from online marketplaces.

Reason (R): Digitalisation has altered consumer purchasing behaviour.

A. Both A and R true, R correct explanation

B. Both A and R true, R NOT correct explanation

C. A true, R false

D. A false, R true

✅ Answer: A

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Q4

Assertion (A): CPI is used by RBI’s Monetary Policy Committee (MPC) for inflation targeting.

Reason (R): CPI captures retail price changes faced by consumers.

A. Both A and R true, R correct explanation

B. Both A and R true, R NOT correct explanation

C. A true, R false

D. A false, R true

✅ Answer: A

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Q5

Assertion (A): MoSPI provides linking factors when revising CPI series.

Reason (R): Linking factors allow comparison between old and new series.

A. Both A and R true, R correct explanation

B. Both A and R true, R NOT correct explanation

C. A true, R false

D. A false, R true

✅ Answer: A

Q6

Consider the following statements regarding CPI in India:

1. CPI is compiled by the Reserve Bank of India.

2. CPI reflects changes in retail prices.

3. CPI is used for inflation targeting.

Which of the statements given above is/are correct?

A. 2 only

B. 2 and 3 only

C. 1 and 3 only

D. 1, 2 and 3

✅ Answer: B

Trap: CPI compiled by MoSPI, not RBI.

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Q7

Which of the following would most likely reduce volatility in headline CPI inflation?

A. Increasing fuel weight

B. Reducing food weight

C. Removing services

D. Increasing rural sample size

✅ Answer: B

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Q8

Which of the following best explains why CPI base year revisions are necessary?

A. To control inflation

B. To adjust fiscal deficit

C. To capture structural economic changes

D. To stabilize currency

✅ Answer: C

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Q9

In the CPI basket, which component is typically most volatile?

A. Housing

B. Food & Beverages

C. Education

D. Health

✅ Answer: B

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Q10

Dearness Allowance (DA) revisions are primarily linked to:

A. Wholesale Price Index (WPI)

B. GDP Deflator

C. Consumer Price Index (CPI)

D. Repo Rate

✅ Answer: C

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Q11 (Classic UPSC Trap)

Consider the following:

1. CPI measures price changes at the wholesale level

2. WPI measures price changes at the retail level

Which of the statements is/are correct?

A. 1 only

B. 2 only

C. Both

D. Neither

✅ Answer: D

Explanation:

• CPI → Retail ✖ statement 1

• WPI → Wholesale ✖ statement 2

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Q1

Consider the following statements about the Consumer Price Index (CPI) in India:

1. CPI weights are derived from the Household Consumption Expenditure Survey (HCES).

2. CPI measures changes in prices at the producer level.

3. CPI is used as the inflation target by the RBI.

Which of the statements given above is/are correct?

A. 1 only

B. 1 and 3 only

C. 2 and 3 only

D. 1, 2 and 3

✅ Answer: B

Trap: CPI measures retail, not producer prices.

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Q2

Which of the following would directly reduce the influence of food inflation on headline CPI?

A. Increasing MSP

B. Reducing weight of Food & Beverages

C. Increasing repo rate

D. Expanding PDS coverage

✅ Answer: B

Trap: MSP/PDS affect prices indirectly, not index weight.

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Q3

Base year revision of CPI primarily aims to:

A. Reduce measured inflation

B. Reflect structural changes in consumption

C. Increase statistical sample size

D. Stabilize exchange rate

✅ Answer: B

Trap: Revision ≠ lowering inflation.

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Q4

Consider the following statements:

1. CPI includes both goods and services.

2. WPI includes services.

3. CPI better captures cost of living changes.

Which are correct?

A. 1 only

B. 1 and 3 only

C. 2 and 3 only

D. 1, 2 and 3

✅ Answer: B

Trap: WPI does NOT include services.

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Q5

Which of the following scenarios could lead to divergence between CPI and WPI inflation?

1. Sharp rise in global commodity prices

2. Increase in service sector prices

3. Food supply shock

A. 1 only

B. 2 only

C. 1, 2 and 3

D. 2 and 3 only

✅ Answer: C

Why tricky:

• Commodity shock → WPI reacts faster

• Services inflation → CPI only

• Food shock → CPI stronger effect

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Q6

Which of the following is most likely when food weight in CPI is reduced?

A. Food inflation disappears

B. Headline CPI becomes less volatile

C. Core inflation increases

D. WPI becomes redundant

✅ Answer: B

Trap: Weight reduction ≠ elimination.

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Q7

“Linking factor” released during CPI revision is used to:

A. Calculate GDP deflator

B. Compare old and new CPI series

C. Adjust fiscal deficit

D. Convert WPI into CPI

✅ Answer: B

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Q8

Which of the following items is included in CPI but not WPI?

A. Crude oil

B. Primary articles

C. Services

D. Fuel group

✅ Answer: C

Classic trap area

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Q9

If vegetable prices surge sharply for a short period, the impact on CPI would be:

A. Permanent

B. Negligible

C. Significant but temporary

D. Reflected only in core CPI

✅ Answer: C

Trap: Vegetables = volatile food → temporary spikes.

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Q10 (Nasty UPSC-style)

Which of the following best explains why CPI is preferred over WPI for inflation targeting?

A. CPI has fewer items

B. CPI captures wholesale prices

C. CPI reflects consumer cost of living

D. CPI excludes volatile items

✅ Answer: C

Trap: CPI actually includes volatile items like food/fuel.