CH: Consumer Price Index

January 5, 2017 02:15 CST

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

Inflation behaved much as expected in December. With base effects quite positive, a 0.1 percent monthly dip in consumer prices was small enough to lift the annual inflation rate by 0.3 percentage points to 0.0 percent, its first non-negative reading since August 2014.

However, once again a key factor influencing the headline data was energy and a 2.0 percent monthly gain in charges here added almost 0.1 percentage points to the overall change. Most other categories saw falling prices, notably clothing and footwear (2.0 percent) and home appliances and maintenance (0.9 percent). The underlying picture was unchanged from November with the core index, which excludes fresh food and energy, again declining 0.1 percent on the month and 0.3 percent on the year.

The pick-up in headline inflation will be welcome at the SNB which will be hoping that household inflation expectations move in tandem. Nonetheless, the ongoing weakness of the core indicates that deflationary risks continue to loom large and the central bank will remain as determined as ever to prevent would-be CHF appreciation from adding to the problem.

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.