Consumer prices performed much as expected in May. A 0.3 percent monthly increase was just a tick firmer than the market consensus and small enough to reduce the annual inflation rate from 2.6 percent to 2.2 percent, matching both expectations and its lowest level since January 2022.

Domestic prices also climbed 0.3 percent on the month, easing their yearly rate from 2.6 percent to 2.4 percent. Import prices rose only 0.1 percent, trimming their annual rate from 2.4 percent to just 1.4 percent.

Within the CPI basket, the steepest monthly gains were in food and soft drink (1.7 percent), clothing and footwear (0.6 percent) and alcohol and tobacco (also 0.6 percent). The only fall was recorded by transport (0.4 percent) as petroleum products dropped 2.5 percent. As a result, core prices (excluding unprocessed food and energy) again rose 0.2 percent which, with base effects quite strongly negative, saw the annual core rate slide from 2.2 percent to 1.9 percent, its first sub-2 percent reading since November 2022.

The deceleration in underlying inflation should go down well at the SNB but will probably not be enough to prevent the bank tightening again later this month. That said, anything more than a 25 basis point increase in the policy rate now looks all the less likely. Today's update puts the Swiss ECDI at minus 19 and ECDI-P at minus 23. Both values show overall economic activity continuing to lag market expectations, as it has consistently since mid-March.

Prices are seen rising 0.2 percent on the month, reducing annual inflation from 2.6 percent in April to 2.2 percent.

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.