CH: Producer and Import Price Index

Fri Oct 13 02:15:00 CDT 2017

Consensus Actual Previous
M/M % change 0.3% 0.5% 0.3%
Y/Y % change 0.6% 0.8% 0.6%

The combined producer and import price index rose 0.5 percent on the month in September to lift the annual inflation rate by 0.2 percentage points to 0.8 percent, a 5-month high. This was its first back-to-back monthly increase since December/January.

The monthly increase in overall prices reflected a 0.4 percent rise in the domestic PPI and a larger 0.8 percent gain in import prices. The yearly change in the former now stands at minus 0.2 percent and in the latter at 2.9 percent.

Domestic prices were boosted by a 7.1 percent monthly bounce in petrol charges together with a 7.9 percent jump in waste and recycling and a 2.9 percent rise in clothing and footwear. There were no declines. Import prices were also lifted by petrol (5.8 percent) alongside metals (2.5 percent).

For the composite index, the core element was up 0.2 percent versus the previous month to stand 0.4 percent higher on the year, just a tick firmer than August's annual rate. Underlying pipeline pressures remain soft.

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.