CH: Producer and Import Price Index

Fri Feb 13 02:15:00 CST 2015

Consensus Actual Previous
M/M % change -0.7% -0.6% -0.4%
Y/Y % change -2.7% -2.1%

The combined producer and import price gauge fell again in January. A 0.6 percent monthly decline was the sixth in a row and left the headline index 2.7 percent below its level in January 2014 following a 2.1 percent annual decrease in December.

Domestic producer prices were down just 0.1 percent versus year-end and 1.8 percent weaker over the last twelve months. Petrol was some 16.1 percent cheaper than in December and alone accounted for more than the entire fall in the overall sub-index. Indeed, elsewhere on average prices actually edged higher and the core index rose 0.2 percent from December and was only 1.0 percent softer than a year ago.

Meantime, import costs slumped a monthly 1.7 percent as petrol dropped fully 16.5 percent. Moreover, the effects of CHF strength were also apparent in other areas of the price basket and the underlying sub-index declined on the month, albeit by a relatively modest 0.2 percent.

January's monthly fall in the headline index was the second steepest in more than three years and probably provides a taste of things to come as the combined impact of local currency strength and a weak energy market feeds through. Swiss CPI inflation is likely to remain negative for most, if not all, of 2015.

The headline composite index combines domestic producer prices and import prices into a single measure. This can be volatile and financial markets will normally look at the core index for a more reliable guide to underlying developments.

The PPI measures prices at the producer level before they are passed along to consumers. Since the producer price index measures prices of consumer goods and capital equipment, a portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months. Producer prices are more volatile than consumer prices. While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or they taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace. The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.