Which CPI does RBI use for inflation targeting? Why not WPI?

Which CPI does RBI use for inflation targeting? Why not WPI?

• RBI’s choice:RBI uses CPI-Combined (2012=100) as the nominal anchor for inflation targeting under the Monetary Policy Framework (2016).

• Why not WPI?

  1. Producer bias: WPI reflects wholesale prices, not consumer experience.

  2. Excludes services: WPI covers only goods, while services form ~50% of GDP.

  3. Volatility: WPI heavily influenced by global commodity prices (oil, metals).

  4. Policy mismatch: Monetary policy is aimed at consumers, not wholesalers.

👉 Thus, CPI-Combined is more relevant for inflation targeting as it directly reflects the cost of living of households.