CH: Consumer Price Index

December 6, 2016 02:15 CST

Consensus Actual Previous
M/M % change 0.0% -0.2% 0.1%
Y/Y % change -0.1% -0.3% -0.2%

Consumer prices were unexpectedly soft in November. A monthly 0.2 percent decline was the first fall since August and sharp enough to reduce annual inflation from minus 0.2 percent to minus 0.3 percent, its lowest reading since June.

The monthly drop in overall prices was partly due to petrol where charges fell 0.8 percent but also reflected broad-based weakness. In particular, recreation and culture saw a 1.5 percent decrease and communications a 1.1 percent fall. Food, alcohol and tobacco declined 0.6 percent and restaurants and hotels 0.5 percent. As a result, the core CPI, which excludes unprocessed food an energy, almost matched the headline data in dipping 0.1 percent versus October. This put the underlying rate at also minus 0.3 percent, unchanged from the previous month.

Coming on top of Friday's unexpectedly poor third quarter national accounts, today's inflation update will not sit well with the SNB. A strong November PMI holds out hope of some pick-up in economic growth and, hence, inflation going forward but the monetary authority cannot be happy. The recent recovery in EUR/CHF will be more than welcome.

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.