For a second successive month, the combined producer and import price index was unchanged in July. The flat monthly reading was again slightly softer than the market consensus but with base effects positive, still firm enough to lift the annual inflation rate from minus 1.9 percent to minus 1.7 percent, a 4-month high.

Domestic prices were also flat at their May level, leaving their yearly rate stable at minus 1.2 percent. Import prices edged up just 0.1 percent, lifting their annual rate from minus 3.2 percent to minus 2.7 percent.

Within the PPI, a 6.5 percent monthly spike in petroleum products added nearly 0.1 percentage point but was offset by typically small declines in a number of other categories. Petroleum products (3.9 percent) also posted easily the steepest increase in the import price index. As a result, overall core prices were unchanged versus June, leaving the annual underlying rate steady at minus 2.1 percent.

Pipeline price pressures would seem to be past their weakest point but current trends remain soft and offer little threat to the SNB's price stability goals. More generally, today's update leaves the Swiss RPI (minus 8) and the RPI-P (minus 10) in negative surprise territory. Overall economic activity continues to slightly undershoot market expectations.

Prices are forecast to rise 0.2 percent versus June when they were unchanged from their May level.

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.