The combined producer and import price index surprisingly fell again in November. Following a 0.3 percent monthly drop in October, the headline index declined 0.6 percent, missing the market consensus by a wide margin. However, base effects saw the annual inflation rate rise from minus 1.8 percent to minus 1.5 percent.

Domestic prices also fell 0.5 percent; the yearly rate edging up from minus 0.5 percent to minus 0.4 percent. Import prices were down a steeper 0.7 percent but still eased the annual rate of decline from minus 4.4 percent to minus 3.8 percent.

Within the PPI, the main monthly falls were posted by rubber, glass and plastic products (2.0 percent) and non-durable consumer goods (1.7 percent). Import prices were driven lower mainly by petroleum which slumped 3.9 percent. As a result, total core prices also dropped a monthly 0.6 percent but this was small enough to lift the annual underlying rate from minus 1.1 percent to minus 1.0 percent.

In sum, pipeline price pressures remain very soft. Today's update lowers the Swiss RPI to minus 13 and the RPI-P to minus 8 showing overall economic activity is falling slightly short of expectations.

Prices are seen up 0.2 percent on the month, reversing most of October's 0.3 percent decline.

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.