Producer and import prices fell a combined 0.6 percent in August from the previous month and were 1.8 percent lower than their level a year ago. Producer prices accounted for most of the monthly decline as they fell 0.8 percent from July and were down 1.3 percent year-on-year, while import prices contracted 0.4 percent month-on-month and 2.7 percent from a year ago.

What stands out is the chemical and pharmaceutical industry, comprising nearly 30 percent of the PPI, which saw significant contraction. On the production side, prices fell 2.7 percent from July and 3.3 percent from a year ago. Imported pharmaceutical prices fell 1.9 percent in August and 4.9 percent year-on-year.

Prices excluding items like agricultural products, meat, oil production, metals and gas, fell 0.8 percent month on month, while falling 2.4 percent year-year.

Manufactured goods prices were unchanged in August and up 0.5 percent from a year ago. Export prices fell 1.5 percent month-on-month and 2.2 percent year-on-year, suggesting possible price cutting by exporters due to US tariffs in an attempt to offset some of the Swiss franc strength and keep products somewhat competitive.

Today's results clearly show there is no pipeline inflation, and with consumer inflation is pretty much non-existent, having fallen 0.1 percent in August and a modest 0.2 percent from a year ago, the Swiss National Bank further reason to cut official rates on September 25.

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.