CH: Producer and Import Price Index

October 14, 2016 02:15 CDT

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

The combined producer and import price index rose 0.3 percent on the month in September to lift the annual inflation rate from minus 0.4 percent to minus 0.1 percent, its highest reading since September 2013.

Domestic producer prices (PPI) were up just 0.1 percent versus August and now show no change from September 2016. Petroleum surged a hefty 11.6 percent and accounted for easily the lion share of the overall monthly gain. Otherwise prices were generally quite subdued with only waste collection (3.4 percent) showing any real volatility.

Meantime, import charges were 0.6 percent more expensive than in mid-quarter, again in large part due to an 11.1 percent jump in petrol costs which alone accounted for two thirds of the increase. The core import index was only 0.1 percent firmer on the month and was 1.0 percent above its year ago level.

Accordingly, for the combined index the underlying performance was significantly softer than the headline rise and a flat reading versus August left the yearly rate here steady at 0.3 percent. Core prices remain very subdued and the risk remains for a renewed downturn should what is still only a fragile economic recovery peter out.

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.