CH: Consumer Price Index

Tue Jun 09 02:15:00 CDT 2015

Consensus Actual Previous
M/M % change 0.1% 0.2% -0.2%
Y/Y % change -1.3% -1.2% -1.1%

Consumer prices were a little stronger than expected in May. Even so, a 0.2 percent monthly increase still saw the annual inflation rate dip to minus 1.2 percent, matching its weakest point during the Great Recession.

To make matters worse, underlying prices were softer still with a 0.1 percent monthly rise in the CPI excluding fresh food and energy enough to reduce the yearly core rate from minus 0.4 percent in April to minus 0.6 percent. Petrol costs were up 3.7 percent versus the start of the quarter and alone accounted for more than half of the monthly increase in the headline index. More generally, goods prices climbed 0.6 percent on the month but were some 3.3 percent lower on the year while service sector charges were flat at April's level and 0.2 percent firmer than in May 2014.

Annual inflation has now been below zero for seven consecutive months and prices have not recorded positive yearly growth since August 2014 (and even then, a minimal 0.1 percent). The level of prices is also 2.5 percent short of its peak in May 2011. In contrast to the Eurozone, at least for now, deflation remains a major problem for the Swiss central bank and today's data will simply reinforce the determination of the SNB to prevent further CHF appreciation.

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.