CH: Producer and Import Price Index

Thu Dec 14 02:15:00 CST 2017

Actual Previous
M/M % change 0.6% 0.5%
Y/Y % change 1.8% 1.2%

The November combined producer and import price index rose 0.6 percent on the month to lift the annual inflation rate by also 0.6 percentage points to 1.8 percent. This was the fifth consecutive increase in the yearly rate and its highest mark since the Great Recession.

The monthly headline advance was mainly due to higher import prices which were up 0.9 percent. Domestic producer prices climbed a more moderate 0.5 percent. The annual rise in the former now stands at 4.6 percent and in the latter at just 0.4 percent.

Within the PPI, petroleum products (8.6 percent) dominated the monthly increase but there were sizeable gains in pharmaceuticals and chemicals (0.9 percent) and waste and recycling (4.9 percent). Import costs were similarly boosted by petrol (6.9 percent) and paper (2.3 percent) also had a notable positive impact.

For the overall composite index, core prices rose 0.3 percent from October for a 0.6 percent annual inflation rate, up 0.5 percentage points from last time. Pipeline price pressures are moving in the right direction but much of the increase is due to CHF weakness and not to any real change in domestic conditions.

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.