CH: Consumer Price Index

August 8, 2016 02:15 CDT

Consensus Actual Previous
M/M % change -0.5% -0.4% 0.1%
Y/Y % change -0.3% -0.2% -0.4%

Consumer prices were a little firmer than expected in July. A seasonal 0.4 percent monthly decline reduced the annual deflation rate by 0.2 percentage points to 0.2 percent, its weakest outturn since November 2014.

Moreover, the relative buoyancy of the headline index was mirrored in the core measure which excludes energy and fresh food. This also dropped 0.4 percent versus June to lift its yearly rate from minus 0.2 percent to 0.0 percent. Much of the overall monthly fall was attributable to seasonal sales in clothing and footwear and prices here were down nearly 9 percent. Petrol (minus 1.8 percent) together with restaurants and hotels (minus 0.6 percent) and household equipment and routine maintenance (also minus 0.6 percent) similarly posted sizeable decreases while recreation and culture (0.4 percent) recorded the largest increase.

The rise in July's annual inflation rate is consistent with the findings of new SECO consumer climate survey released last week. This found households' assessment of current inflation climbing to its highest mark since April last year as well as a useful pick-up in inflation expectations. From a monetary policy perspective there is still a long way to go and much will depend upon how the exchange rate performs but today's data should go down cautiously well at the SNB.

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.