Slowing Swiss inflation opens door for earlier SNB cuts
The Swiss National Bank in Bern.
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Inflation unexpectedly eased in January, a development that could open the door to earlier rate cuts at the Swiss National Bank (SNB).
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Bloomberg
Consumer prices rose by 1.3% in January from a year earlier, the Swiss federal statistical office (FSO) office said Tuesday. That’s much less than the 1.7% predicted by economists, which would have matched the December reading.
The so-called core gauge, which strips out volatile elements like energy and food, also slowed to 1.2%.
The drop comes as a surprise as many prices in the Swiss economy are regulated and those for electricity rose at the beginning of the year. January also marked a boost in value-added tax to 8.1% from 7.7%.
“We are seeing the predicted price increases, but underlying price pressures are just extremely low,” said Karsten Junius, chief economist at Bank J Safra Sarasin Ltd.
SNB President Thomas Jordan has said that while inflation wouldn’t exceed the central bank’s target – between 0 and 2% – he still sees it approaching the range’s ceiling.
Economists expect the SNB to start rate cuts in September, though Tuesday’s unforeseen weak reading might speed up that schedule, with some analysts already betting on June. Unlike its major peers, the Swiss central bank only meets once a quarter.
“It’s clear that a rate cut in March just got a higher probability now,” Junius said. “But we can’t be sure at this time that inflation won’t flare up again. Growth in the US – but also in Switzerland – is resilient.”
The strong franc continues to shield the economy from importing higher price growth from elsewhere. After the inflation data, the currency slumped as much as 0.4% against Europe’s common currency and traded at €0.947 per franc.
Data from the euro area showed that prices rose an annual 2.8% there in January. Based on the European Union’s harmonised measure, Swiss inflation was 1.5% last month.
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