CH: Producer and Import Price Index

January 19, 2017 02:15 CST

Consensus Actual Previous
M/M % change 0.2% 0.2% 0.1%
Y/Y % change 0.1% 0.0% -0.6%

The combined producer and import price index rose 0.2 percent on the month in December, its fourth increase in a row and enough to raise the annual inflation rate from minus 0.6 percent to 0.0 percent.

However, the latest advance was wholly attributable to rising import costs which were up 0.5 percent versus November. Domestic producer prices were only flat on the month and 0.2 percent below their level a year ago.

Within the PPI basket most components were little changed on the month; the only notable exceptions being transport and petroleum products (both minus 0.9 percent) and waste collection and recycling (2.9 percent). The core PPI was also steady at its mid-quarter level and still some 0.7 percent weaker on the year. The import price basket was more volatile but with the major gains limited to the more erratic categories, the core index actually dipped 0.1 percent on the month to stand 0.3 percent lower on the year.

Consequently, the core headline index also declined 0.1 percent from November while its annual rate slipped from minus 0.5 percent to minus 0.6 percent. Underlying deflationary pressures may be stabilising but total supply prices are unlikely to provide any real boost to CPI inflation for some time yet.

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.