— Zürich, 3. August 2023, FiPAX —
Inflation in Switzerland has once again slightly decreased in July. Import prices, in particular, have recently seen a significant drop. However, economists are not yet sounding the all-clear: Inflation has not been tamed completely.
The annual inflation rate in July 2023 dropped to 1.6 percent from 1.7 percent in June, as reported by the Federal Statistical Office (FSO) on Thursday. Previously, inflation had been heading in only one direction due to higher raw material prices and supply shortages: upwards.
Starting from the beginning of the year, electricity prices in the country provided an upward push, causing the annual inflation to rise to 3.4 percent. However, since March 2023, it has been steeply declining, and by June, inflation was already below the commonly accepted 2 percent threshold for price stability.
With the current value, Switzerland remains significantly below that of the Eurozone, where a recent inflation rate of 5.3 percent was measured.
Energy prices a significant factor “At present, Switzerland does not have an inflation problem compared to other countries,” summarizes VP Bank Chief Economist Thomas Gitzel. However, the key word in this sentence is clearly “at present.”
While prices for imported goods (-0.6%) are gradually normalizing, domestic goods in July still cost 2.3 percent more than a year ago.
A part of the decrease in inflation, according to UBS economist Florian Germanier, is primarily due to statistical reasons and is referred to as the base effect. Energy prices had surged due to the Russian war against Ukraine, and now these effects are gradually dropping out of the statistics.
Inflation drivers ahead Looking ahead to the coming months, various factors that could drive inflation are on the horizon. With the higher reference interest rate, many Swiss citizens will have to shoulder higher rental costs starting in autumn. Subsequently, rising electricity tariffs – which energy providers are allowed to adjust only at the turn of the year – will provide further impetus.
Hence, inflation is expected to reach its lowest point in August at 1.5 percent, according to ZKB economist David Marmet. However, from November onwards, it is likely to surpass the 2 percent mark again due to the aforementioned factors.
Furthermore, the risk of so-called second-round effects triggered by significant wage increases still exists. While UBS expert Germanier sees no significant wage-price spiral forming, inflation has not been fully reined in yet.
Another interest rate step by the SNB Therefore, the majority of experts expect the Swiss National Bank (SNB) to continue tightening the monetary policy in September. Specifically, they anticipate a quarter-point increase to 2 percent. SNB Chief Thomas Jordan is expected to “add another preventive step,” according to Alexander Koch of Raiffeisen Schweiz. However, this would be the “final” interest rate hike, as agreed upon by the experts.
In the view of Karsten Junius from Bank Safra Sarasin, the SNB could afford to take a pause in interest rate hikes in the autumn. Junius suggests that they should “wait and see” if rising rents will indeed lead to a significant resurgence in inflation, as assumed in their previous forecast.