Swiss inflation rate jumps to highest level in two years

Consumer prices have picked up in Switzerland Keystone / Gaetan Bally

Swiss inflation accelerated far more than analysts anticipated to the fastest pace since September 2024, suggesting a weaker franc is feeding through to the economy.

Consumer prices rose 0.8% in August from a year earlier, up from 0.4% in July, the Federal Statistical Office said on Thursday. The result was higher than every single forecast of 16 economists in a Bloomberg survey.

The reading is the last that Swiss National Bank (SNB) officials will see before their interest-rate decision later this month. While the result notably exceeded expectations, it remains consistent with the average for the current quarter predicted by the central bank.

The pick-up in inflation will be welcomed by policymakers in a country where consumer price growth has often been feeble and even turned briefly negative last year. The outcome still underscores how benign the Middle East energy shock has been for Switzerland at a time when its neighbors are seeing costs surge.

In the euro area that surrounds the country, consumer prices rose 3.3% in August, the highest in almost three years. Following the harmonised European methodology, that compares to a Swiss rate of 0.9%.

Clothing prices down

SNB has predicted a mild, temporary acceleration of consumer-price growth that may now be assisted by the weaker franc, which this week reached a one-year low against the euro.

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The franc extended gains after the data to rise 0.4% to CHF0.9385 per euro, after Wednesday’s CHF0.9435 low.

With 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%.

Last month, higher costs for petroleum products were partly offset by lower ones for clothing and footwear, the statistics office said. So-called core inflation, which excludes volatile elements such as energy, picked up to 0.4% from 0.3% – that’s the first acceleration this year.

The reading coincides with a potential upswing of the Swiss economy. Output adjusted for major sports events expanded by 1.5% in the second quarter, five times more than had been expected.

That growth was driven by exports, particularly in pharma and chemicals, according to a detailed breakdown of drivers published Thursday.

Manufacturing contributed more than services, which is unusual for Switzerland. Government spending continued to outpace private consumption for a third quarter.

Rate hike possible

While economists question if that the reading might be an outlier rather than a sustainable acceleration, a key leading indicator of growth has reached the highest level in almost five years. Also, wages appear to keep rising, outpacing inflation, and manufacturing in August exceeded expectations.

Helping the outlook for export-focused Switzerland is a trade deal with China that will remove almost all tariffs on goods bound for Asia’s biggest economy. The agreement, which has yet to be ratified, envisions Swiss signature goods including watches, pharmaceuticals and precision instruments being imported fully duty-free.

While the Iran war prompted a surge in the franc earlier this year that alarmed the SNB enough to spark interventions to stem the gains, the currency has dropped against the euro since then. Officials have still kept up the threat of cutting borrowing costs below zero if necessary.

In July, Bloomberg reporting indicated that inside the SNB the rate is expected to stay at zero through next year before it then probably rises. That view is still in line with what most economists predict.

“Price risks have shifted to the upside in Switzerland as well,” Thomas Gitzel, chief economist at VP Bank in Vaduz, said in reaction to the inflation data. “A rate hike in December cannot be completely ruled out.”

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

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