The combined producer and import price index continued to decline in September. An unexpected 0.1 percent monthly dip was the third consecutive fall and reduced the annual inflation rate from minus 0.8 percent to minus 1.0 percent, its most negative reading since February 2021.

Domestic producer prices were flat at August's level, trimming their yearly rate from 1.0 percent to 0.9 percent. Import prices dropped 0.2 percent, lowering their annual rate from minus 4.1 percent to minus 4.7 percent.

Within the PPI, petroleum products were down 1.6 percent on the month, easily the steepest decline, while on the upside, agricultural and forest products rose 1.1 percent. Most other categories were either flat or recorded only small changes. Import prices would have fallen more sharply but for a 4.9 percent increase in petroleum products which alone added more than 0.2 percentage points. Elsewhere, the most significant fall was in mining and quarrying products (3.5 percent). Consequently, the underlying composite index edged 0.1 percent lower versus August, cutting the annual core inflation rate from 0.3 percent to just 0.1 percent, its weakest print since April 2021.

Today's update again extends the softening trend in pipeline inflation in Swiss manufacturing and further boosts the probability that the SNB's policy rate has peaked. The data leave the Swiss RPI (minus 11) in negative surprise territory but only due to the unexpected weakness of prices. At 13, the RPI-P shows overall real economic activity running slightly ahead of forecasts.

Producer prices are seen up 0.3 percent on the month in September after falling 0.2 percent in August.

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.