Consumer prices undershot expectations in May. A 0.3 percent monthly increase was a tick short of the market consensus and only steep enough to leave the annual inflation rate at 1.4 percent, matching a 5-month high. The headline rate remains easily within the SNB's definition of price stability.

Stable overall inflation reflected a 0.4 percent increase in domestic prices which saw their yearly rate unchanged at 2.0 percent and flat import prices where the annual rate dipped from minus 0.4 percent to minus 0.6 percent.

Within the CPI basket the main upward pressures came from housing and energy where a 0.6 percent gain contributed nearly 0.2 percentage points to the monthly change. Elsewhere, the only other rise of note was in food and soft drink (0.9 percent). Most other moves were only limited apart from alcohol and tobacco which fell 1.1 percent. As a result, core prices (ex-food and energy) advanced 0.2 percent versus April which held the underlying yearly inflation rate steady at 1.2 percent, matching a 5-month peak.

The May data will leave investors guessing about another possible cut in the SNB's policy rate later this June. Headline and core inflation are not a problem but domestic prices remain firm and the Swiss franc has lost ground this year. More generally, today's report puts the Swiss RPI at 9 and the RPI-P at 17. Overall economic activity continues run slightly ahead of market expectations.

Prices are expected rise 0.4 percent on the month, lifting the annual rate from April's 1.4 percent to 1.6 percent.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by Swiss households. Monthly and annual changes in the CPI provide widely used measures of inflation. The policy target measure for the Swiss National Bank (SNB), the annual CPI rate can be distorted by swings in prices amongst the more volatile subsectors and the CPI excluding fresh food and energy is used as a better guide to underlying short-term trends. Although not a member of the Eurozone, a harmonized index of consumer prices (HICP), measured according to Eurostat's procedures, is also published alongside the CPI.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from loans to notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion. By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.