CH: Consumer Price Index

Fri Dec 04 02:15:00 CST 2015

Consensus Actual Previous
M/M % change -0.1% -0.1% 0.1%
Y/Y % change -1.3% -1.4% -1.4%

Consumer prices behaved much as expected in November. A 0.1 percent monthly decline was the first fall since the middle of last quarter but still seasonally soft and weak enough to leave the annual inflation rate unchanged at the record minus 1.4 percent low posted since August.

Goods prices actually edged 0.1 percent higher (but were down some 3.0 percent on the year) thanks to a 0.2 percent monthly rise in non-durables that more than offset an equivalent increase in durables. Semi-durables were unchanged. However, petrol charges were up 1.9 percent and alone added nearly 0.1 percentage points to the headline monthly change.

Services saw a 0.2 percent drop, wholly accounted for by decreases in the private sector. The core CPI, which excludes fresh food and energy, was 0.1 percent lower on the month which saw its yearly rate drop from minus 0.8 percent to an ominously low minus 1.0 percent.

Combined with a stagnating real economy, the ongoing weakness of consumer prices means that another ease from the SNB next week is a real possibility. However, some of the immediate pressure has been relieved by the ECB's unexpectedly tame moves yesterday and the consequent bounce in the euro. That said, EUR/CHF made only relatively limited progress and at currently CHF1.085, is still below its late November highs. Moreover, it is not as if the ECB failed to expand QE or left its deposit rate unchanged so the chances are that the euro's rise will prove only temporary anyway.

As such the SNB could opt to keep its powder dry for now but additional monetary accommodation and/or FX intervention to cap CHF strength would not come as any surprise.

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.