CH: Producer and Import Price Index

Thu Mar 15 03:15:00 CDT 2018

Actual Previous
M/M % change 0.3% 0.3%
Y/Y % change 2.3% 1.8%

The composite producer and import price index rose a further 0.3 percent on the month in February. This lifted its yearly change from 1.8 percent to 2.3 percent, its first time above the 2 percent mark since the Great Recession.

The monthly headline advance reflected gains in both domestic producer prices (0.4 percent) and import charges (0.3 percent). Annual inflation for the former now stands at 1.2 percent, but it remained the latter, at now 4.5 percent, that provided most of the boost to the overall rate.

Still, with falling petrol prices weighing, the core index posted a sharper 0.5 percent monthly spurt which lifted the underlying annual rate by 0.6 percentage points to 1.5 percent, also a multi-year high. For the SNB, the pick-up here will be very welcome but it is still the case that too much of the acceleration is due to CHF weakness, and not to domestically generated pressures.

The producer price and import price index focuses on the actual prices of products on the market (transaction price) at the time of the order. The prices of domestic products are taken at the producer or factory level, excluding value added tax and consumption taxes. For imports, prices are collected at the Swiss border, without the value added tax, taxes on consumption and tariffs. Changes in the index provide a guide to inflation from the point of view of the product's producer/manufacturer

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.