Consumer prices continued to surprise on the downside in October. A 0.1 percent monthly fall was enough to shave 0.2 percentage points off the yearly inflation rate which, at now just 0.6 percent, matches its weakest mark since April 2021.

The overall monthly drop reflected 0.1 percent declines in both domestic and import prices, the former reducing annual inflation from 2.0 percent to 1.8 percent and the latter from minus 2.7 percent to minus 3.1 percent.

Within the CPI basket, the main area of weakness was petroleum products where prices were down 2.1 percent versus September alongside food and soft drinks (minus 0.7 percent) and alcohol and tobacco (minus 0.5 percent). Declines here were sufficient to more than offset modest gains elsewhere. As a result, core prices rose just 0.1 percent, cutting the annual underlying inflation rate by a couple of ticks to 0.8 percent, equalling its lowest reading since November 2021.

Inflation remains within the SNB's definition of price stability but the ongoing decline in the core rate is becoming a real problem for the central bank and would seemingly guarantee another cut in the policy rate next month. Indeed, while already at just 1.0 percent, a 50 basis point move is looking increasingly possible. Today's update trims the Swiss RPI to minus 31 and the RPI-P to minus 6. Overall economic activity is falling short of market expectations but mainly due to surprisingly soft prices.

Prices are expected to be flat on the month after a surprising 0.3 percent fall in September.

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.