The combined producer and import price index was surprisingly soft in February. A 0.2 percent monthly drop was well wide of the market consensus, albeit not steep enough to reverse January's 0.7 percent advance. The slide trimmed the annual inflation rate from 3.3 percent to 2.7 percent, its lowest mark since April 2021.

However, domestic producer prices increased a monthly 0.3 percent, raising their yearly rate from 2.8 percent to 3.0 percent. Consequently, the overall decline was wholly attributable to import prices which dropped 1.0 percent, reducing their annual change from 4.3 percent to 2.3 percent, the weakest reading since March 2021.

Within the monthly change in the PPI, electricity and gas supply (5.0 percent) alone added 0.2 percentage points to the overall monthly rise and non-metallic mineral products (6.0 percent) accounted for much of the rest. However, petroleum products (minus 5.8 percent) subtracted significantly. The slide in import prices was largely due to mining and quarrying products which slumped fully 17.4 percent. As a result, the underlying composite index rose 0.1 percent versus January, lifting the annual core inflation rate from 2.0 percent to 2.2 percent, its third successive rise.

Pipeline inflation pressures in Swiss industry remain at manageable levels but the recent acceleration in the core rate will not please the SNB. The fallout from the SVB and Signature Bank collapse inevitably complicates policy but outside of this, the central bank would most likely want to tighten again next week. Today's report puts the Swiss ECDI at 4 and the ECDI-P at minus 5. Both values are close enough to zero to show that overall economic activity is now performing much as expected.

Prices are expected to advance a further 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.