CH: Producer and Import Price Index

November 14, 2016 02:15 CST

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

The combined producer and import price index edged 0.1 percent higher on the month in October, its second consecutive increase after back-to-back declines in July and August. However, negative base effects still saw the annual inflation rate slip from minus 0.1 percent to minus 0.2 percent.

October's minimal monthly gain reflected wholly more expensive imports with charges here climbing 0.3 percent. The domestic PPI was a tick lower largely due to a 7.4 percent drop in the cost of waste collection and recycling. Most other categories were broadly stable at their respective September levels with the notable exception of petroleum products which were up 7.0 percent.

The core composite index showed no change versus September which put the annual underlying rate at minus 0.1 percent, down from 0.3 percent last time. With the CHF having already appreciated versus the EUR in the wake of last week's U.S. elections, the SNB will not be happy.

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.