While both baskets measure inflationary trends (the movement of price signals) within the broader economy, the two indices differ sharply in the manner in which weightages are assigned to food, fuel and manufactured items, as well as at the broken-down level of these segments.
Wholesale inflation, measured by WPI, tracks year-on-year inflation at the producer or factory gate level, and is a marker for price movements in the purchase of bulk inputs by traders.
CPI, on the other hand, captures changes in prices levels at the shop end, and is, thereby, reflective of the inflation experienced at the level of consumers.
The weightage of food in CPI is far higher (46%) than in WPI (24%).
Also, WPI does not capture changes in the prices of services, which CPI does.
As in any imperfect market, changes in prices at the producer level get transmitted to consumers, mostly with a lag and, in some cases, not to the full extent of the impact at the producer level. So, while a higher WPI reading can be an aberration at times, a steady upward surge in WPI reading is most certainly an indicator of inflationary pressure entrenching itself within the broader economy and getting eventually reflected in the CPI numbers.
In April 2014, the RBI had adopted the CPI as its key measure of inflation. Prior to this, the central bank had given more weightage to the WPI as the key measure of inflation for all policy purposes.