CH: Producer and Import Price Index

Mon Jun 15 02:15:00 CDT 2015

Consensus Actual Previous
M/M % change 0.1% -0.8% -2.1%
Y/Y % change -5.1% -6.0% -5.2%

The combined producer and import price index fell a further 0.8 percent on the month in May and now shows an annual decrease of fully 6.0 percent, its steepest decline since July 2009, in the midst of the Great Recession. The composite measure has now fallen in nine of the last ten months.

Domestic producer prices matched the 0.8 percent monthly headline fall and were 4.3 percent lower on the year. Import prices were rather weaker, sliding 1.0 percent versus April to stand 9.9 percent below their level in May 2014. Within the PPI, all of the major market sectors posted monthly falls bar energy which saw a 2.7 percent rise. As a result, the core PPI was down 1.0 percent versus April and 3.7 percent lower on the year. Core import prices slumped 1.9 percent on the month and were some 7.6 percent lower on the year.

Accordingly, for the overall index, underlying developments were again very weak and core prices were off 1.2 percent on the month and 4.8 percent on the year following a 3.6 percent annual drop last time. Notwithstanding April's surprisingly upbeat news on retail sales (see today's calendar entry), deflationary pressures in the Swiss economy remain as intense as ever.

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.