Swiss Inflation Slows to Just 0.3% as SNB Ponders Next Cut
(Bloomberg) — Switzerland saw barely any inflation in February with the lowest reading in almost four years, presenting a challenge to policymakers as they mull whether to bring their interest rate closer to zero.
Consumer prices rose 0.3% from a year ago in February, the statistics office said on Wednesday. That’s down from 0.4% in January and just above the 0.2% median estimate in a Bloomberg survey of economists.
The slow down was driven by hotels, berries and second-hand cars, according to the government agency. The core gauge — which excludes fresh and seasonal products as well as energy — held steady at 0.9%.
February was the sixth consecutive month with inflation below 1% in a country that is consistently showing one of Europe’s lowest growth rates of consumer prices. Cheaper imports from the surrounding euro area are weighing on the gauge as cheaper goods costs there feed through to Switzerland with a delay.
The franc, meanwhile, has mostly stopped its rally against the euro but doesn’t show signs of weakening. So far, haven flows into the currency — which are common in times of geopolitical uncertainty — haven’t materialized in a substantial way.
That has seen Swiss National Bank President Martin Schlegel tone down his language on subzero rates slightly. In a newspaper interview last week, he stressed that the SNB will only take that drastic step if necessary to keep inflation from slowing so strongly that it threatens price stability — defined as consumer-price growth between 0% and 2% in the medium term.
What Bloomberg Economics Says…
“Weak inflation remains consistent with the SNB cutting its policy rate by 25 basis points at its March meeting, with risks tilted toward further easing in 2025, which could take the central bank back to zero interest rate policy.”
—Jean Dalbard and Maeva Cousin, for full react click click here
Still, fears persist that inflation will undercut this range, with Schlegel himself warning this could happen in single months. For the whole of 2025, the central bank expects consumer-price growth to average just 0.3%, even after officials lowered borrowing costs in a surprise half-point move in December.
The main reason why Swiss inflation still remains above zero are rents, according to Arthur Jurus, an economist at Oddo BHF Schweiz AG. He highlighted that they are up 3.2% compared to a year ago and annual consumer-price growth would be at -0.3% if they were excluded.
He also said that coming rent cuts from a drop in a key mortgage benchmark will probably not have a large impact on the gauge. This is because only one a minority of tenants can demand a reduction while demand still strongly outpaces supply, Jurus said.
At the rate decision on March 20, economists expect one more 25 basis-point cut in borrowing costs, bringing the policy rate to 0.25%. Regarding further reductions — which were priced in as recently as late last year — observers have grown increasingly cautious given inflation pressures still evident in major economies.
While price growth in the euro area slowed slightly to 2.4% in February, it remains several times faster than Switzerland’s. Based on the European Union’s harmonized measure, the Swiss saw an advance of 0.1% in that period.
–With assistance from Joel Rinneby, Kristian Siedenburg and Harumi Ichikura.
(Updates with Bloomberg Economics comment after sixth and economist starting in eighth paragraph)
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