The combined producer and import price index fell again in December. A 0.7 percent monthly decline followed a 0.5 percent drop in November and reduced the annual inflation rate from 3.8 percent to 3.2 percent. This was its sixth straight decline since peaking at 6.9 percent in May/June and its lowest mark since July 2021.

Domestic producer prices were down 0.2 percent on the month, trimming their yearly rate from 2.8 percent to 2.6 percent. Import prices fell a much sharper 1.7 percent and were up 4.4 percent versus December 2021 after a 5.8 percent gain last time.

Within the monthly change in the PPI, petroleum products (minus 13.6 percent) were especially weak and alone subtracted more than 0.2 percentage points. Basic metals and metal products (minus 1.0 percent) also subtracted. However, most other categories posted fresh gains, notably timber products (1.9 percent). As a result, the underlying composite index edged 0.1 percent higher versus November, raising the annual core inflation rate from 1.8 percent to 1.9 percent, its first rise since September.

Even so, today's update suggests that pipeline inflation pressures in Swiss industry are at manageable levels. It also puts the Swiss ECDI at 3 and the ECDI-P at 28, showing that overall economic outperformance is only being checked by surprisingly weak prices.

Prices are seen rising 0.3 percent on the month.

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 producer price and import price index 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 and import prices are more volatile than consumer prices. While the CPI is the price index with the most impact in setting interest rates, the producer price and import price index provides significant information earlier in the production process. The producer price and import price index 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 producer price and import price index decreases or posts only small increases, but bond prices fall when the index 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.