CH: Producer and Import Price Index

September 13, 2016 02:15 CDT

Consensus Actual Previous
M/M % change -0.2% -0.3% -0.1%
Y/Y % change -0.3% -0.4% -0.8%

The combined PPI and import price index fell 0.3 percent on the month in August. However, with base effects quite strongly positive, the yearly rate rose from minus 0.8 percent in July to minus 0.4 percent, its fifth increase in a row and its strongest mark since January 2014.

Domestic producer prices were 0.2 percent lower on the month and just 0.1 percent weaker than in August 2015 while import prices decreased 0.6 percent versus July for a minus 1.2 percent annual rate.

The main negative impact on the monthly PPI change came from petroleum products which posted a 13.9 percent slump and alone subtracted more than 0.1 percentage points. Elsewhere things were much less volatile and the core index was flat at its July level and also unchanged on the year. Import prices were similarly dominated by a near-14 percent monthly slide in petrol charges which essentially accounted for the index's entire monthly drop. Indeed, the core gauge here was up 0.1 percent versus July and 0.9 percent firmer than in August 2015.

As a result, the overall underlying picture was rather firmer than suggested by the headline data with the core index flat on the month and, at 0.3 percent, finally back into positive annual growth territory. The pick-up here should be well received by the SNB although, as Thursday's policy announcement will no doubt make clear, deflation risks at the consumer level remain very significant. There is no room for any let up in the central bank's highly accommodative policy stance.

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.