CH: Producer and Import Price Index

Tue Dec 15 02:15:00 CST 2015

Consensus Actual Previous
M/M % change -0.1% 0.4% 0.2%
Y/Y % change -6.6% -5.5% -6.6%

The combined producer and import price index increased 0.4 percent on the month in November, its steepest rise since August 2012. Annual deflation declined to 5.5 percent, its weakest rate since April.

The surprisingly sharp monthly headline gain reflected advances in both components but at 0.8 percent, the rise in import charges was more than double the 0.3 percent gain in the domestic PPI.

For once petrol prices provided a useful boost and an 11.2 percent monthly spurt here added more than 0.1 percentage points to the monthly headline change in the PPI. The other main boost came from chemicals and pharmaceuticals where prices were up 0.6 percent. The core PPI was 0.2 percent stronger versus October but still down 3.1 percent on the year.

Almost half of the monthly increase in import charges also derived from higher petrol prices (up 8.1 percent) but the majority of subsectors posted more modest gains too.

For the composite index the core element was 0.3 percent higher than in October and 4.2 percent lower on the year after a 4.9 percent drop last time. The stronger tone of the November data is good news for the SNB but a succession of positive reports will be needed to really dent ongoing deflation concerns. To this end, the renewed downturn in oil prices does not bode well for December.

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.