CH: Producer and Import Price Index

Thu Jul 13 02:15:00 CDT 2017

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

The combined producer and import price index dipped 0.1 percent on the month and also from a year ago in June. The annual rate was accordingly 0.2 percentage points short of its May outturn, its first negative reading since last November.

Headline weakness in June reflected 0.1 percent monthly falls in both the domestic PPI and import prices. Annual growth of the former now stands at minus 0.6 percent and of the latter at 0.9 percent.

The monthly decrease in producer prices was mainly due to a 4.9 percent drop in waste collection and recycling and a 2.8 percent decline in wood products. Most other categories were relatively stable. Import price components were rather more volatile.

The core composite price index was unchanged versus May and 0.6 percent lower on the year, a 0.1 percentage point decline from the mid-quarter rate. Pipeline inflation pressures remain very subdued.

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.