Consumer prices were slightly softer than expected in August. A flat monthly performance was a tick short of the market consensus and weak enough to trim the annual inflation rate by 0.1 percentage point to just 1.1 percent, a 5-month low.

The dip in the headline rate was wholly attributed to import prices where a 0.1 percent monthly drop reduced their annual change from minus 1.0 percent to minus 1.9 percent. Domestic prices were unchanged, holding their yearly rate stable at 2.0 percent.

Within the CPI basket, monthly declines in transport (1.2 percent) and household goods and services (0.9 percent) were essentially cancelled out by rises in clothing and footwear (2.4 percent) and smaller increases elsewhere. As a result, core prices edged only 0.1 percent firmer, again keeping the annual underlying inflation rate stable at a lowly 1.1 percent.

In line with July, the August update leaves Swiss inflation well within the SNB's definition of price stability. Moreover, with the core rate having stabilised at 1.1 percent over the last three months, underlying pressures would seem to be nicely under control. Should the SNB want to ease again later this month, inflation developments pose no hurdle. More generally, today's report puts the Swiss RPI at 7 and the RPI-P at 25. Overall economic activity continues to run slightly ahead of market expectations.

Annual inflation is expected to dip a tick to just 1.2 percent in August.

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.