The combined producer and import price index was surprisingly weak at the start of the year. A 0.5 percent monthly drop was no where near the market consensus and, following a 0.6 percent decrease in December, means that prices have fallen in six of the last seven months. The annual inflation rate declined from minus 1.1 percent to minus 2.3 percent matching its weakest reading since November 2020.

Domestic prices were unchanged on the month, trimming their yearly rate from 0.5 percent to minus 0.1 percent. Import prices were much weaker, sliding 1.6 percent to reduce their annual rate from minus 4.4 percent to minus 6.5 percent.
Within the PPI, petroleum products (minus 6.2 percent) again saw the steepest monthly fall but other sizeable declines were seen in furniture and other manufacturing (2.0 percent) and computer, electronic and optical products (0.7 percent). Against that, electricity and gas supply jumped 5.5 percent and water supply 1.4 percent. Meantime, the drop in import prices was led by mining and quarrying products (minus 16.9 percent) and petroleum products (minus 8.5 percent).

The January update lowers the underlying annual inflation rate from minus 0.4 percent to minus 1.1 percent, matching its weakest print since February 2021. Pipeline price pressures in Swiss manufacturing remain very soft. Today's data reduce the Swiss RPI to minus 29 and the RPI-P to minus 6. Overall economic activity is lagging forecasts but mainly due to the unexpected weakness of prices.

Prices are expected to rise a monthly 0.3 percent following a 0.6 percent drop in December.

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.