Consumer prices continued to undershoot expectations in June. A flat monthly performance was a couple of ticks short of the market consensus and soft enough to trim the annual inflation rate from 1.4 percent to 1.3 percent, a 3-month low.

The dip in overall inflation masked a 0.2 percent increase in domestic prices which left their yearly rate unchanged at 2.0 percent. Rather, it reflected a 0.5 percent fall in import prices which reduced their annual rate from minus 0.6 percent to minus 0.8 percent.

Within the CPI basket seasonal sales saw the prices of clothing and footwear tumble a sizeable 2.6 percent versus May. Household goods and services (minus 1.8 percent) were also sharply weaker as were petroleum products (minus 1.3 percent). However, recreation and culture (1.4 percent) posted a hefty gain and there were rises too in restaurants and hotels (0.5 percent), food and soft drink (0.4 percent) and alcohol and tobacco (0.3 percent). Core prices (ex-food and energy) eased 0.1 percent on the month, lowering the underlying yearly inflation rate from 1.2 percent to 1.1 percent, its weakest print since March.

The June inflation update provides further justification for last month's SNB policy rate cut. Both headline and core inflation have been consistently below 2 percent since June 2023 and with labour market pressures easing, would seem well placed to remain there over coming months. More generally, today's report puts the Swiss RPI at minus 35 and the RPI-P at minus 23. Overall economic activity continues run well behind market expectations.

Consumer inflation in Switzerland is widely expected to remain stable, with the annual rate forecast at 1.4 percent in June, the same as in the previous two months. Inflation rose to the current rate in April from 1.0 percent in March, marking the highest since 1.7 percent in December. The Swiss National Bank aims to keep inflation under 2 percent. On the month, consumer prices are expected to increase 0.2 percent after rising 0.3 percent in May.

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.