The combined producer and import price index dipped 0.1 percent on the month in July. The unexpected fall left the annual inflation rate unchanged at minus 0.6 percent, its third successive negative print.

Domestic producer prices were again flat at their June level, also keeping their yearly rate steady at 1.7 percent. Import prices dropped 0.4 percent but this too left their 12-monthly change stable at minus 5.0 percent.

Within the PPI, monthly changes were generally small with the main exceptions being petroleum products (4.0 percent) and water treatment and distribution, waste collection, recovery (minus 1.9 percent). Import prices were dented by a 5.3 percent slump in mining and quarrying products and a 3.1 percent fall in agricultural products. However, petroleum products (3.8 percent) rose strongly. As a result, the underlying composite index was flat on the month, trimming the annual core inflation rate from 1.5 percent to 1.2 percent, its lowest outturn since July 2021.

Today's update provides further evidence of softening pipeline inflation pressures in Swiss manufacturing and should reduce the likelihood of SNB tightening in September. In any event, the July update puts the Swiss ECDI at minus 13 and the ECDI-P at minus 9, showing that overall economic activity is also underperforming market expectations.

Prices are expected to be unchanged on the month, matching their June outcome.

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.