CH: Producer and Import Price Index

Tue Feb 13 02:15:00 CST 2018

Actual Previous
M/M % change 0.3% 0.2%
Y/Y % change 1.8% 1.8%

The combined producer and import price index rose for a sixth straight month in January. A 0.3 percent monthly increase saw the annual inflation rate hold steady at December's 1.8 percent mark.

The monthly advance reflected a 0.3 percent increase in domestic producer prices and a larger 0.5 percent gain in import charges. The yearly rate for the former is still subdued at just 0.5 percent and well short of the 4.3 percent rate recorded by imports.

The main boost to the PPI came from petroleum products where prices were up 4.3 percent versus December, metals (0.5 percent) and information technology and related equipment (also 0.5 percent). The core PPI was 0.2 percent firmer on the month and 0.1 percent lower on the year. The monthly change in import prices was similarly boosted by petrol (3.3 percent) as well as metals (2.2 percent) and agricultural products (3.4 percent).

The core composite index matched December's minimal 0.1 percent monthly rise to stand 0.9 percent above its level in January 2017. This was a tick firmer than the 0.8 percent annual rate posted last time. The underlying trend is creeping up but mainly due to the impact of CHF weakness. Domestic 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.