Consumer prices were surprisingly soft in March. A 0.2 percent monthly increase was only half the market consensus and small enough to trim the annual inflation rate from 3.4 percent to 2.9 percent, a 3-month low.

Domestic prices dipped 0.1 percent on the month, reducing their yearly rate from 2.9 percent to 2.7 percent. Import prices rose a further 0.9 percent but strongly negative base effects still ensured that their annual rate slid from 4.9 percent to 3.8 percent.

Within the CPI basket, the largest contribution to the overall monthly rise came from clothing and footwear where prices spiked a largely seasonal 3.8 percent and alone added more than 0.1 percentage point. Transport (0.7 percent) was robust despite a 0.7 percent drop in petroleum products and recreation and culture (1.2 percent) similarly posted a sizeable gain. On the downside, the only declines of any real significance were in alcohol and tobacco (0.7 percent) and restaurants and hotels (1.6 percent). As a result, core prices (excluding unprocessed food and energy) also rose 0.2 percent versus February, lowering the annual core rate from the previous month's record high by 0.2 percentage points to 2.2 percent.

The deceleration in core inflation last month should be well received by the SNB. However, the rate remains on the wrong side of 2 percent and will need to fall further if policy is not to be tightened again in June. To this end, today's update leaves both the Swiss ECDI (minus 14) and ECDI-P (minus 13) sub-zero, increasing the chances that sluggish growth will help to lower inflation of its own accord.

A 3.2 percent annual rate is expected for March consumer prices which would compare with a much higher-than-expected 3.4 percent rate in February.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by Swiss households. Monthly and annual changes in the CPI provide widely used measures of inflation. The policy target measure for the Swiss National Bank (SNB), the annual CPI rate can be distorted by swings in prices amongst the more volatile subsectors and the CPI excluding fresh food and energy is used as a better guide to underlying short-term trends. Although not a member of the Eurozone, a harmonized index of consumer prices (HICP), measured according to Eurostat's procedures, is also published alongside the CPI.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from loans to notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion. By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.