The combined producer and import price index fell 0.2 percent in July and stands 0.9 percent below its year ago level, led primarily by a decline in watches. Input prices for timepieces were 2.9 percent lower than in June and 3.7 percent below their year ago level.

This bellwether industry is being hit particularly hard by the 39 percent US tariffs. Already, employment in the industry has contracted and watch exports are down. Additional price easing came from medical and dental equipment.

By themselves, overall producer prices fell 0.3 percent in July, while remaining unchanged from a year ago. At the same time, import prices were up 0.1 percent on the month, but 2.8 percent below July of last year, as petroleum products and natural gas prices were higher.

Manufactured goods prices were unchanged domestically in July, and up 0.2 percent from a year ago, while those for export fell 0.6 percent, while rising 0.6 percent from a year ago.

Today's results are another piece in the overall price picture for the Swiss National Bank. The overall lack of pipeline inflation will give the central bank leeway to lower interest rates at its next meeting. Tomorrows flash GDP is highly unlikely to show an overheating economy, and with the US showing no signs of budging on tariffs, the Swiss economy is facing enormous challenges.

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.