MONEY AND BANKING (Part – I)

As per the question period, the new Wholesale Price Index (WPI) series was introduced with effect from 14 September, 2010. The base year of this WPI series was 2004-05. On 12 May, 2017 (effective from April, 2017) the base year of the WPI has been revised from 2004-05 to 2011-12.

As per the question period, the new Wholesale Price Index (WPI) series was introduced with effect from 14 September, 2010. The base year of this WPI series was 2004-05. On 12 May, 2017 (effective from April, 2017) the base year of the WPI has been revised from 2004-05 to 2011-12.

As per the question period, the new Wholesale Price Index (WPI) series was introduced with effect from 14 September, 2010. The base year of this WPI series was 2004-05. On 12 May, 2017 (effective from April, 2017) the base year of the WPI has been revised from 2004-05 to 2011-12.

As per the question period, the new series of Wholesale Price Index (WPI) released by the Government of India was with reference to the base prices of 1993-94, previously it was 1981-82. At present, 2011-12 is used as the base year of WPI.

On 19 October, 2009, CCEA had decided to shift the base year of WPI from 1993-94 to 2004-05 and its data release on monthly basis. The new series of WPI base year 2004-05 was introduced with effect from September, 2010. This WPI series was implemented on the recommendation of Abhijit Sen Committee.

In October, 2009, the government decided on discontinuing the releasing of weekly inflation data based on Wholesale Price Index for 'All Commodities' and 'Manufactured Products'. Although till January 2012, the government continued to release Wholesale Price Index for 'Primary Articles' and 'Fuel & Power' data on weekly basis. Hence, as per the question period, statement (1) was incorrect. But from February 2012, the WPI in India is available on a monthly basis only for all item groups. Therefore, Statement 1 is correct in the present context. Statement (2) is correct, because in India as compared to Consumer Price Index for Industrial Workers [CPI (IW)], the WPI gives less weight to food articles. Hence, in the present context, option (c) is the correct answer.

Price index is a measure that examines the weighted average of prices of a basket of certain consumer goods and services. Given that the current price index (base year 1960=100) is nearly 330. It means that the weighted mean (average) of prices of certain items has increased 3.3 times.

Producer Price Index (PPI) measures the average change in the prices of goods and services either as they leave the place of production, called output PPI or as they enter the production process, called input PPI. PPI estimates the change in average prices that a producer receives.

Cost push inflation is caused by shift or decrease in aggregate supply curve while increase in wages is the reason for shift (left side) or decrease in aggregate supply curve. Hence, both assertion and reason are true and reason is the correct explanation of assertion.

In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes to contain the post-pandemic inflation. A study by the World Bank, published in 2022, has revealed that with the Central Banks across the world simultaneously hiking interest rates in response to inflation, the world may be edging toward a global recession and a string of financial crises in emerging markets and developing economies that would do them lasting harm. The report said that the Central Banks around the world have been raising interest rates this year (in 2022) with a degree of synchronicity not seen over the past five decades.

Central Banks use monetary policy to manage economic fluctuations and achieve price stability. Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means i.e. by increasing interest rates. They are doing the same to contain the post-pandemic inflation. Hence, both statements are correct and Statement-II is the correct explanation of Statement-I.