CH: Consumer Price Index

Fri May 08 02:15:00 CDT 2015

Consensus Actual Previous
M/M % change 0.1% -0.2% 0.3%
Y/Y % change -0.9% -1.1% -0.9%

Consumer prices were significantly weaker than expected in April. A 0.2 percent monthly fall reduced the annual inflation rate from minus 0.9 percent in March to minus 1.1 percent, matching its lowest level since July 2009.

Most categories saw monthly price declines with only clothing and shoes (2.4 percent) recording an increase of note. Petrol fell 0.7 percent but had only a small impact on the change in the overall rate. Indeed, the core CPI, which excludes unprocessed food and energy, fell an only marginally smaller 0.1 percent and, at minus 0.4 percent, the annual underlying rate was 0.2 percentage points beneath its March posting.

Today's data reinforce a worryingly deflationary picture in Switzerland and so emphasise the problems facing SNB policy. As yesterday's April consumer sentiment survey made plain, household inflation expectations, a vital input into the central bank's monetary stance, have plummeted. The latest drop in actual prices duly adds to the risk of second round effects and increases the likelihood that would-be current consumption will be deferred. More than most, the Swiss economy could do with an inflationary boost and, ideally, a much weaker local currency.

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.