A rise in prices by any other name: CPI vs WPI in India

RBI downplays WPI importance: Citi
RBI downplays WPI importance: Citi

India released its wholesale price index (WPI) on Friday, but the closely-watched inflation number may not have the same resonance for local markets as it once did.

That's because recent comments by the Reserve Bank of India (RBI) suggest the central bank is now placing a greater emphasis on the consumer price index (CPI) when it comes to setting monetary policy.

(Read more: Is India going back to bullion?)

"It is the right thing to do," said Frederic Neumann, co-head of Asian economic research at HSBC. "Ultimately the goal of central banking is to anchor inflation expectations and therefore targeting the CPI is a more relevant measure of actual prices that consumers face on a day-to-day basis."

Inflation in India, struggling with sluggish economic growth, is down from double-digit rates seen last year but remains stubbornly high. That means it's likely to be a hot topic in this year's national elections.

In India, the CPI was introduced in 2011 and is a relatively new indicator.

A vendor sits waiting for customers at the wholesale fish market in Margoa, Goa, India.
Dhiraj Singh | Bloomberg | Getty Images

"CPI has traditionally been the measure that most central banks would want to look at," said Rahul Bajoria, a regional economist at Barclays. "In the case of India, the only reason the WPI was watched more closely than the CPI is that it had more data and came out in a timely manner."

WPI inflation eased to an eight-month low of 5.05 percent in January from 6.16 percent in December, data on Friday showed.

Economists say recent comments by new RBI Governor Raghuram Rajan suggest the central bank is now looking more closely at the CPI measure.

(Read more: China January CPI rose 2.5% on year)

So what?

And what does that mean for India's rate outlook? In short, say analysts, the CPI remains at what they describe as "elevated levels" and that suggests a tightening bias is likely to remain in place for now.

India still faces sticky inflation: JPMorgan
India still faces sticky inflation: JPMorgan

In January, the RBI lifted interest rates for the third time since September to help contain price pressures.

"We believe the next move is more likely to be up than down, particularly as Governor Rajan begins to focus on the task of bringing headline consumer price inflation down to 6 percent by early 2016," Robert Prior-Wandesforde, director for non-Japan Asia economics at Credit Suisse, said in a note.

(Read more: India central bank surprises with rate hike)

HSBC's Neumann said he also anticipated another rate hike in the months ahead. The RBI next meets in April.

As for the WPI, analysts added they would continue to pay attention to the indicator.

"Everyone still keeps a wary eye on the WPI as it has been the relevant indicator for some time, but the CPI is now the indicator to watch," said Neumann.

-By CNBC's Dhara Ranasinghe. Follow her on Twitter at @DharaCNBC