CH: Consumer Price Index

Wed Apr 08 02:15:00 CDT 2015

Consensus Actual Previous
M/M % change 0.1% 0.3% -0.3%
Y/Y % change -1.1% -0.9% -0.8%

Consumer prices were stronger than expected in March. However, while a 0.3 percent monthly increase was the first rise in the CPI since September, it was still not enough to prevent the annual inflation rate ticking down from minus 0.8 percent in February to minus 0.9 percent, its weakest reading since June 2012.

In fact, overall developments would have been rather softer but for a 5.0 percent monthly bounce in petrol charges which alone accounted for more than half of the change in the headline index. The core CPI, which excludes energy and unprocessed foods, was up 0.2 percent versus mid-quarter to yield a minus 0.2 percent yearly rate, a couple of ticks below its February mark.

Today's data will probably come as little surprise to the SNB which just last month revised down its inflation forecast for 2015 from minus 0.1 percent to minus 1.1 percent. Indeed, its new projections put the annual CPI rate at minus 1.2 percent at year-end and, at minus 0.2 percent, still below zero in the fourth quarter of 2016.

The CHF has recently shown signs of stabilising above EUR/CHF1.04 which should help to ease some of the downside pressure on prices. However, deflationary trends seem to be sufficiently well entrenched that the risk of households deferring spending in anticipation of still weaker prices already poses a major threat to the central bank's 1.0 percent growth forecast this year.

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.