CH: Producer and Import Price Index

Tue Nov 14 02:15:00 CST 2017

Actual Previous
M/M % change 0.5% 0.5%
Y/Y % change 1.2% 0.8%

The combined producer and import price index again rose 0.5 percent on the month in October. This put the yearly inflation rate at 1.2 percent, up from 0.8 percent in September, its third straight gain and its highest reading since March.

Domestic producer prices were up a relatively modest 0.2 percent versus September and now stand 0.1 percent higher on the year. However, import prices jumped 1.1 percent for annual growth of 3.7 percent.

Within the PPI the main monthly changes were in waste and recycling (minus 7.3 percent), petroleum products (minus 1.8 percent) and machinery (1.5 percent).

The core composite index matched the 0.5 percent monthly headline advance and this was enough to see the underlying annual rate finally move back into positive territory at 0.1 percent. The pick-up here in no small way reflects the recent weakness of the CHF and without this, prices would be significantly weaker and core inflation well below zero. To this end, preventing any renewed appreciation of the local currency remains a vital part of SNB monetary policy.

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.