Producer and import prices fell 0.5 percent in May and were down 0.7 percent year-on-year primarily as prices for petroleum products fell by 10.7 percent on the month while dropping 18.2 percent from a year ago.

The results show Switzerland is not importing inflation, with the price for goods from abroad falling 1.1 percent in May and 2.9 percent from a year ago, as energy prices were 10.9 percent less expensive in May. The core import price index which excludes petroleum products among other volatile items fell 0.1 percent in May.

Producer prices fell 0.2 percent in May and were 0.4 percent higher than a year ago, although core prices rose 0.2 percent in May and 1.2 percent from a year ago. Pharmaceuticals, which make up nearly 25 percent of the producer price index, rose 0.9 percent on the month and 3.3 percent from May of last year.

Falling energy and fuel prices helped to keep prices in check. But that could change should the conflict between Israel and Iran widen. Today's results are unlikely to sway the Swiss National Bank from cutting rates further at its meeting on Thursday.

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.