CH: Consumer Price Index

Fri Mar 06 02:15:00 CST 2015

Consensus Actual Previous
M/M % change -0.1% -0.3% -0.4%
Y/Y % change -0.6% -0.8% -0.5%

Consumer prices were very soft in February. A sharper than expected 0.3 percent monthly drop was the third fall in a row and reduced the annual inflation rate from minus 0.5 percent to minus 0.8 percent, its lowest mark since May 2012.

Service sector prices were unchanged at their January level but goods charges were down some 0.7 percent as non-durables declined 0.9 percent and both semi-durables and durables decreased 0.4 percent. Petrol costs were off a further 3.3 and alone accounted for more than a third of the headline decline. However, prices were generally weak and the core index, which excludes fresh produce and energy, dipped 0.1 percent from the start of the year, enough to see its yearly rate slide from 0.4 percent to zero.

In line with the other major price measures the CPI continues to adjust to the slump in oil costs. However, for Switzerland this effect has been compounded by the jump in the value of the local currency and the SNB has to be more alert than most to the risks of second round effects. Fortunately for the central bank the CHF appears to be finding its new equilibrium level well below its mid-January high. Nonetheless, at presently about EUR/CHF1.07 the unit is still around 12 percent stronger than before the SNB abandoned its former FX policy so downside potential to upcoming data inflation data remains very real.

The consumer price index measures the price of a basket of goods (commodities and services) which is assumed to represent the average consumption habits of private households. The consumer price index is thus a yardstick for the cost development of the goods consumed (price level). Although not a member of the Eurozone, a harmonized index of consumer prices (HICP), measured according to Eurostat's procedures is also published alongside the CPI.

The price level is the weighted average of various output prices in the economy. The price level measures the price of a defined basket of goods which is a cross-section of the goods produced or consumed in an economy (commodities and services). A stable price level does not necessarily imply stable unit prices: price rises for individual goods may be compensated by price reductions for other goods so that overall the price level remains constant. A rise in the price level implies a decline in the purchasing power of money: on average, a monetary unit will buy a smaller number of commodity units. Consequently, the price level and monetary value always exhibit opposite development.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from loans to notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion. By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.