Passage: A single number for inflation is an aggregate across different commodities and services — the price rise differs for dif…

Question

Passage: 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?

1. A. We must use WPI exclusively in measuring price rise and CPI should be done away with.
2. B. The present calculation of inflation rate does not correctly measure price rise of individual item/commodity. (Correct answer)
3. C. Inflation data under-presents services in the consumption basket.
4. D. Knowledge of inflation rate is not really of any use to anybody in the country.

Correct Answer

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

Detailed Solution & Explanation

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

Key Points

• The passage argues that CPI uses an averaged consumption basket, but different classes (poor, middle, rich) have vastly different baskets, making the composite index imprecise for any individual group.
• Option B — "The present calculation of inflation rate does not correctly measure price rise of individual item/commodity" — reflects the logical message about the inadequacy of a single aggregate number.