The Wholesale Price Inflation has increased in India during 2021 – 2022 due to which of the following factors? 1. Sharp increase in international prices of crude oil 2. Decrease in economic activity post-Covid 3. Disruption of global supply chain 4. High freight cost Select the correct answer using the code given below:
- (a)2 and 3 only
- (b)1, 3 and 4
- (c)1 and 2 only
- (d)1 and 4 only
Correct — B, 1, 3 and 4. The three that qualify are all cost-push shocks arriving from outside the domestic economy, and they hit the wholesale basket much harder than the retail one. Crude oil is the first: prices climbed steeply through 2021 and spiked above a hundred dollars a barrel after the invasion of Ukraine in February 2022, and because India imports most of its crude, that feeds straight into the fuel and power group and into every manufactured product with an energy or petrochemical input. The second is the disruption of global supply chains, with port congestion, container shortages and factory closures leaving buyers bidding for scarce intermediates. The third is freight, which rose several times over on the main container routes during 2021 and adds directly to the landed cost of imported inputs. Statement 2 is the odd one out and points the wrong way: a fall in economic activity depresses demand and pushes prices down, and in any case activity was rebounding strongly in 2021-22 rather than falling.
- (a)2 and 3 only — Built entirely around the false statement. Weaker activity is disinflationary; it cannot be a cause of a sharp rise in wholesale prices.
- (c)1 and 2 only — Pairs a genuine cause with the false one and drops both supply-chain disruption and freight, which are the two clearest transmission channels for imported cost pressure in that period.
- (d)1 and 4 only — Correct as far as it goes but incomplete. It leaves out the disruption of global supply chains, which was the underlying reason freight rates and input prices rose in the first place.
The Wholesale Price Index tracks prices at the first point of bulk sale and is released by the Office of the Economic Adviser in the Ministry of Commerce and Industry. Its basket is dominated by manufactured products, with primary articles next and fuel and power the smallest of the three groups — an ordering CDS itself tested one session later. Because there are no services in the basket and manufactured goods dominate it, WPI reacts far more sharply than retail inflation to swings in the cost of imported energy and industrial inputs.
The way through this item is to sort the four statements into things that raise costs and things that lower demand. Crude oil, broken supply chains and expensive freight are all cost shocks and all point upward. Falling activity is a demand story and points downward. One statement therefore contradicts the direction of the question, and no combination containing it can be right — which removes two options at a stroke. On honesty: this card does not certify a headline figure for wholesale inflation in 2021-22, because the number was not verified from a primary source here. The answer does not need one. It rests on the composition of the index and on the direction each listed factor pushes prices.
- The Wholesale Price Index is compiled by the Office of the Economic Adviser, Ministry of Commerce and Industry, on a 2011-12 base.
- Manufactured products carry the largest weight in the index, ahead of primary articles, with fuel and power the smallest of the three groups.
- India imports the great majority of its crude oil, so global oil prices pass through quickly into wholesale prices.
- Container freight rates on major routes rose several times over during 2021 amid port congestion and container shortages.
- The Wholesale Price Index contains no services, which is one reason it can diverge widely from the Consumer Price Index.
- Assuming any disturbance after the pandemic must be inflationary. A contraction in activity works the other way.
- Treating the Wholesale Price Index and the Consumer Price Index as interchangeable; the wholesale basket has no services and far more manufactured goods.
- Overlooking freight and logistics as a price channel, when in that period they were among the largest.
As a multi-cause statements item on a named episode of inflation, or as a question on the composition and coverage of the Wholesale Price Index.
With reference to India, consider the following statements: 1. The Wholesale Price Index (WPI) in India is available on a monthly basis only. 2. As compared to Consumer Price Index for Industrial Workers (CPI(IW)), the WPI gives less weight to food articles. Which of the statements given above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer(c) Both 1 and 2
Explains why the wholesale index behaves as it does. A basket light on food and heavy on manufactured goods is precisely a basket that swings with imported energy and input costs.
Consider the following statements regarding weightage of different articles in Wholesale Price Index (WPI): 1. Fuel and power have higher weightage in WPI than that of primary articles. 2. Weightage of manufactured products in WPI is higher than that of fuel and power. Which of the statements given above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer(b) 2 only
Settles the ordering of the three groups two sessions later — manufactured products largest, primary articles ahead of fuel and power. That composition is what makes an oil and freight shock show up so strongly in this index.
- practice — not a real PYQ
Which of the following is NOT included in the Wholesale Price Index in India?
- (a)Manufactured products
- (b)Fuel and power
- (c)Services
- (d)Primary articles
Answer(c) Services — the wholesale basket covers goods only, which is a major reason it can diverge from the Consumer Price Index.
- practice — not a real PYQ
A sharp rise in the price of imported crude oil raises domestic prices through which type of inflation?
- (a)Demand-pull inflation
- (b)Cost-push inflation
- (c)Structural inflation caused by wage indexation
- (d)Inflation caused by a fall in the money multiplier
Answer(b) Cost-push inflation — the shock arrives on the supply side, raising production costs rather than adding to demand.