Swiss Inflation Slows to Four-Month Low as SNB Seen on Hold

(Bloomberg) — Swiss inflation slowed to a four-month low, resisting the impact of energy prices that have fanned surging costs across Europe.

Consumer prices rose 0.4% in July from a year earlier. That’s down from 0.5% in June and matches the median economist estimate in a Bloomberg survey.

Higher costs for diesel and heating oil were offset by a range of cheaper goods and services from clothing to car rentals, Switzerland’s statistics office said. So-called core inflation, which excludes volatile elements such energy, held at 0.3%.

Monday’s reading contrasts with a mild, temporary acceleration predicted by the Swiss National Bank. With interest rates at zero, the central bank expects the quarterly average to peak at 0.8% by early next year, comfortably within its targeted range of 0-2%. Officials have stressed that medium-term pressures are essentially unchanged.

July saw the franc weaken and oil prices rise, two factors that typically fan Swiss inflation. The reading highlights how benign the energy shock has been in Switzerland compared with neighbors such as the euro area, where price growth is much faster.

Based on weak inflation dynamics, people familiar with the thinking inside the SNB told Bloomberg that in the absence of shocks, borrowing costs are currently expected to stay at zero until the end of next year. Then they will probably rise, the people said.

Publicly, policymakers have stressed that if necessary, they have an “increased willingness” to sell the franc in order to prevent an excessive appreciation of the traditional haven currency. That likely contributed to the recently softer franc.

The SNB has apparently followed through on that rhetoric by purchasing foreign currencies worth 3.9 billion francs ($4.8 billion) in the first quarter. Second-quarter data are due at the end of September.

Following the euro area’s harmonized methodology, the Swiss inflation rate in July was 0.7%. That compares with 2.9% in the currency zone that surrounds the country.

–With assistance from Harumi Ichikura, Joel Rinneby and Kristian Siedenburg.

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