A single number for inflation is an aggregate across different commodities and services — the price rise differs for different items of consumption. So, the single number is arrived at by assigning weights to different commodities and services. For WPI, the weights in production are used; for CPI, the consumption basket is used. But people are not homogeneous. The consumption basket is vastly different for the poor, the middle classes, and the rich. Hence, the CPI is different for each of these classes and a composite index requires averaging the baskets.

Which one of the following statements best reflects the most logical, rational and crucial message conveyed by the passage?

Question

A single number for inflation is an aggregate across different commodities and services — the price rise differs for different items of consumption. So, the single number is arrived at by assigning weights to different commodities and services. For WPI, the weights in production are used; for CPI, the consumption basket is used. But people are not homogeneous. The consumption basket is vastly different for the poor, the middle classes, and the rich. Hence, the CPI is different for each of these classes and a composite index requires averaging the baskets.

Which one of the following statements best reflects the most logical, rational and crucial message conveyed by the passage?

Accepted Answer

The present calculation of inflation rate does not correctly measure price rise of individual item/commodity.

Answer

We must use WPI exclusively in measuring price rise and CPI should be done away with.

Answer

Inflation data under-presents services in the consumption basket.

Answer

Knowledge of inflation rate is not really of any use to anybody in the country.

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