CH: Producer and Import Price Index

Fri Jan 19 02:15:00 CST 2018

Actual Previous
M/M % change 0.2% 0.6%
Y/Y % change 1.8% 1.8%

The combined producer and import price index rose a further 0.2 percent on the month in December, its fifth straight gain. Annual inflation was 1.8 percent, unchanged from its November outturn.

The latest monthly advance in part reflected a 0.1 percent increase in domestic producer prices but was largely attributable to a 0.4 percent bounce in import charges. The yearly rate for the former now stands at 0.5 percent and for the latter, fully 4.5 percent in respect of the slide in the Swiss franc since the middle of 2017.

Within the PPI, the largest monthly rises were seen in waste management (2.2 percent), autos and other means of transport (1.2 percent) and agriculture and forestry products (also 1.2 percent). However, much of this impact was offset by a sharp fall in petrol (2.6 percent). The core PPI was up 0.1 percent from mid-quarter and just 0.2 percent higher on the year. Import costs were dominated by a spike in coal, crude oil and natural gas (4.0 percent).

The underlying composite index was 0.1 percent firmer on the month which saw its yearly rate extend its climb into positive territory by a couple of ticks to 0.8 percent. Pipeline inflation pressures continue to build but only slowly and essentially due to exchange rate weakness. Accordingly, the SNB cannot afford to allow its currency to reverse the current slide for fear of unwinding the limited progress made so far on boosting consumer prices.

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.