CH: Consumer Price Index

September 6, 2016 02:15 CDT

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

August inflation almost moved out of negative territory for what would have been the first time in two years. A 0.1 percent monthly dip in the CPI was in line with market expectations and firm enough to lift its yearly rate by 0.1 percentage points to minus 0.1 percent, its highest mark since October 2014.

A seasonal 2.5 percent monthly spike in the cost of clothing and shoes provided the most support for the CPI but this was offset by a 1.1 percent drop in transportation charges. Culture and recreation (minus 1.0 percent) was the other main area of weakness. The underlying picture was essentially unchanged with the CPI excluding energy and fresh food also down just 0.1 percent versus July which left its annual rate steady at that month's 0.0 percent print.

Deflationary pressures have eased somewhat in recent months but there is certainly no room for complacency. As today's second quarter national accounts clearly highlighted (see the GDP calendar entry), domestic demand remains very sluggish and in the absence of renewed growth here downside risks to prices will remain sizeable.

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.