CH: Producer and Import Price Index

December 14, 2016 02:15 CST

Actual Previous
M/M % change 0.1% 0.1%
Y/Y % change -0.6% -0.2%

The combined producer and import price index edged 0.1 percent higher on the month in November, its third straight rise. However, with base effects quite strongly negative, annual inflation still dropped from minus 0.2 percent to minus 0.6 percent.

The overall monthly gain was wholly attributable to higher domestic prices as the PPI matched the headline advance which masked a 0.1 percent dip in import charges. Yearly growth of the former now stands at minus 0.5 percent and of the latter at minus 0.8 percent.

Within the PPI the only monthly moves of note were in recycling (16.6 percent) and petroleum products (4.8 percent). The core index actually dipped 0.1 percent versus October and was 0.7 percent lower on the year. Petroleum products (3.8 percent) also had a significant impact on import prices and the core element here similarly fell a monthly 0.1 percent and as well as declining 0.1 percent from November 2015.

For the composite measure, underlying prices were 0.1 percent lower on the month and 0.5 percent weaker on the year after just a 0.1 percent annual decrease last time. Such figures show that Swiss deflationary pressures have yet to fully abate. Coming just ahead of tomorrow's SNB policy statement, this inevitably keeps alive the risk of additional monetary accommodation. However, any such shift will probably depend upon how EUR/CHF responds to today's widely anticipated Fed tightening.

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.