The combined producer and import price index unexpectedly fell again in August. A 0.2 percent monthly drop followed a 0.1 percent dip in July and reduced the annual inflation rate from minus 0.6 percent to minus 0.8 percent, its most negative reading since February 2021.

Domestic producer prices declined 0.4 percent versus June, lowering their yearly rate from 1.7 percent to 1.0 percent. However, import prices edged a tick firmer to boost their annual rate from minus 5.0 percent to minus 4.1 percent.

Within the PPI, most monthly changes were again generally small, although there were notable exceptions in petroleum products (13.8 percent), which alone added nearly 0.2 percentage points, timber products (minus 2.1 percent) and water treatment and distribution, waste collection, recovery (minus 1.8 percent). Import prices were similarly lifted by a 13.0 percent spike in petroleum products. The underlying composite index fell fully 0.7 percent, cutting the annual core yearly inflation rate from 1.2 percent to just 0.3 percent, its lowest outturn since April 2021.

Today's update extends the softening trend in pipeline inflation in Swiss manufacturing and will raise further question marks over a possible SNB interest rate hike next week. The data also leave both the Swiss RPI (minus 23) and RPI-P (minus 27) well below zero and so indicative of overall economic activity continuing to undershoot market expectations.

Prices are expected up 0.1 percent on the month following a 0.1 percent dip in July.

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.