CH: Consumer Price Index

Fri Apr 08 02:15:00 CDT 2016

Consensus Actual Previous
M/M % change 0.2% 0.3% 0.2%
Y/Y % change -1.0% -0.9% -0.8%

Consumer prices were a touch firmer than expected in March. However, a 0.3 percent monthly rise in the headline CPI was not enough to prevent the annual inflation rate from sliding a tick to minus 0.9 percent, its first decline since last August.

Much of the monthly increase was attributable to seasonal factors, notably in clothing and shoes where prices spiked 4.8 percent versus February and alone added nearly 0.2 percentage points to the overall change. The other main boost came from petrol which posted a 2.0 percent bounce. Elsewhere prices were relatively stable and the core CPI (ex-fresh food and energy) increased 0.2 percent from its mid-quarter level for an unchanged yearly rate of minus 0.5 percent.

Today's update adds little new to a still very subdued Swiss inflation picture. The good news is that the annual headline rate is still well above the minus 1.4 percent low seen in August through November 2015 but the bad news is that it remains well short of zero. Meantime, the underlying rate has been essentially moving sideways for some time now. Against this backdrop the SNB will remain resolute in its efforts to prevent any further rise in the CHF.

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.