Consumer prices were a little stronger than expected in July. A 0.2 percent decline on the month was shallow enough to leave the annual inflation rate unchanged at 1.3 percent, a tick higher than the market consensus. That said, it still matched a four-month low.

The steady headline rate reflected a 0.2 percent monthly increase in domestic prices that held their yearly rate stable at 2.0 percent but masked the 1.3 percent drop in import prices which reduced their annual change from minus 0.8 percent to minus 1.0 percent.

On the month, clothing and footwear posted a largely seasonal 6.3 percent drop, alone subtracting nearly 0.2 percentage points. Recreation and culture (minus 1.5 percent) and transport (minus 0.8 percent) also saw sizeable declines. On the upside, the steepest increase was in restaurants and hotels (1.3 percent) ahead of food and soft drink (0.9 percent) and alcohol and tobacco (0.5 percent). As a result, core prices were down 0.3 percent versus June, keeping the annual underlying inflation rate flat at just 1.1 percent.

The July update leaves Swiss inflation well within the SNB's definition of price stability. Indeed, with the core rate still so low and the labour market showing signs of cooling, speculation about what would be a third consecutive cut in the central bank's policy rate next month is likely to become all the more intense. More generally, today's report puts the Swiss RPI at minus 23 and the RPI-P at minus 19. Overall economic activity continues to run well behind market expectations.

Prices are seen falling 0.2 percent on the month, reducing the annual inflation rate from 1.3 percent to 1.2 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.