The combined producer and import price index was much weaker than expected in December. A 0.6 percent monthly drop was double the market consensus but with base effects quite strongly positive, still small enough to boost the annual inflation rate from minus 1.3 percent to minus 1.1 percent.

Domestic producer prices were down 0.2 percent versus November, trimming their 12-month rate from 0.6 percent to 0.5 percent. Import prices declined a steeper 1.4 percent but their annual rate still rose from minus 4.8 percent to minus 4.4 percent.

Within the PPI, a 12.1 percent slump in petroleum products was easily the steepest drop and alone subtracted nearly 0.2 percentage points off the overall monthly change. Most other changes were only small apart from water supply which rose 1.9 percent. Import prices were similarly depressed by petroleum products (minus 9.1 percent) as well as mining and quarrying products (minus 14.4 percent). Consequently, the underlying composite index decreased a further 0.1 percent on the month to stand 0.4 percent lower on the year, its weakest outturn since March 2021.

In line with the rest of Europe, today's report shows minimal inflationary pressures in Swiss manufacturing. It also puts the Swiss RPI at 3 and the RPI-P at 6, both values indicating economic activity in general essentially moving in line with market expectations.

Prices are seen sliding 0.3 percent on the month after a 0.9 percent drop in November.

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.