CH: Consumer Price Index

Thu Oct 06 02:15:00 CDT 2016

Consensus Actual Previous
M/M % change 0.2% 0.1% -0.1%
Y/Y % change 0.0% -0.2% -0.1%

Consumer prices were slightly weaker than expected in September. Moreover, a 0.1 percent monthly rise was small enough to nudge the annual inflation rate a tick deeper into negative territory at minus 0.2 percent, its first decline since March.

As it is, the monthly uptick in the CPI was essentially just a seasonal phenomenon with a 4.2 percent spurt in clothing prices prompted by new fashion lines more than fully accounting for the entire increase in the headline index. Transport charges were up 0.3 percent as petrol prices climbed nearly 3 percent but elsewhere it was a case of no change or falls, most notably in alcohol and tobacco (0.9 percent) and food and soft drink (0.7 percent). As a result, the core CPI, which excludes unprocessed food and energy, was only flat at its August level which, in turn, saw its yearly rate slip from 0.0 percent to minus 0.1 percent.

Amidst signs that the economic recovery has lost some momentum in recent months, the dip in September inflation will not sit well with the SNB. SECO's July consumer survey found household inflation expectations climbing to their highest mark since last October and the risk is that the drop in the actual rate leads to a renewed decline this month. The central bank has successfully put a floor to EUR/CHF around the CHF1.08 mark through 2016 so far and today's prices update will ensure that it remains as determined as ever to prevent any additional CHF appreciation going forward.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by Swiss households. Monthly and annual changes in the CPI provide widely used measures of inflation. The policy target measure for the Swiss National Bank (SNB), the annual CPI rate can be distorted by swings in prices amongst the more volatile subsectors and the CPI excluding fresh food and energy is used as a better guide to underlying short-term trends. 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 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.