CH: Producer and Import Price Index

Tue May 15 02:15:00 CDT 2018

Consensus Actual Previous
M/M % change 0.3% 0.4% -0.2%
Y/Y % change 2.7% 2.0%

The combined producer and import price index rebounded in April. A 0.4 percent monthly rise more than reversed March's 0.2 percent drop and lifted the annual inflation rate from 2.0 percent to 2.7 percent, a multi-year high.

However, the monthly headline increase was (again) largely attributable to import prices which advanced fully 0.8 percent and now stand 5.1 percent higher on the year. By contrast, domestic producer prices gained only 0.2 percent for a more subdued annual rate of 1.5 percent.

Within the PPI, the main boost to the monthly change came machines (1.3 percent) ahead to electrical equipment (0.9 percent) and metals (0.6 percent). However, petrol (8.3 percent) also provided a significant lift and the same category was worth more than half the increase in overall import charges.

Even so, a 0.3 percent rise in the core composite index lifted the yearly underlying inflation rate by 0.4 percentage points to 1.8 percent, also a multi-year peak. The recovery here is in line with signs of a strengthening economic upswing but, for now, the SNB must still be concerned about the relative weakness of domestically generated price pressures.

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.