Having surprisingly fallen in May for the first time since January, the combined producer and import price index was unchanged on the month in June. The flat reading was slightly softer than the market consensus and weak enough to reduce the annual inflation rate from minus 1.8 percent to minus 1.9 percent, a 3-month low.

Domestic prices were up 0.1 percent versus May, lifting their yearly rate from minus 1.3 percent to minus 1.2 percent. However, import prices fell 0.2 percent, reducing their annual rate from minus 2.9 percent to minus 3.2 percent.

Within the PPI, a 3.2 percent monthly slide in petroleum products was more than offset by smaller gains elsewhere with food, drink and tobacco (0.8 percent) as well as textiles and footwear (also 0.8 percent) notably robust. Import prices were driven lower by a 5.2 percent slump in petroleum charges. As a result, overall core prices were 0.1 percent firmer, nudging up the annual underlying rate from minus 2.2 percent to minus 2.1 percent, its first increase since March last year.

Pipeline price pressures are probably past their weakest point but current trends offer little threat to the SNB's price stability goals. Indeed, today's update leaves the Swiss RPI (minus 36) and the RPI-P (minus 25) still deep in negative surprise territory. Overall economic activity continues to undershoot market expectations by some margin.

Prices are seen rising 0.1 percent on the month after a 0.3 percent fall in May.

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.