— Zürich, September 27, 2023, FiPAX —

Inflation is expected to remain above the National Bank’s target for some time. Despite a recent significant decrease in inflation, it will continue to persist in Switzerland for an extended period.

In Switzerland, price increases are expected to pick up slightly by the end of the year. Currently, the inflation rate stands at 1.6 percent. The Swiss National Bank (SNB) anticipates that inflation will rise to 2.2 percent in the coming year.

The reasons for this renewed increase are primarily twofold: energy costs are set to rise again at the turn of the year, and rent increases are also influencing inflation figures. Following the rise in the mortgage reference interest rate in June, most rent adjustments are expected to be implemented by the beginning of October. This will be reflected in the inflation figures in the coming months.

The good news, however, is that the effect of rent increases on inflation figures will not trigger a price spiral. According to the current SNB expectations, the inflation rate is expected to fall below the SNB’s long-term target of 2.0 percent by 2025. This will be facilitated by an economic slowdown that could be stronger than expected, thereby dampening price pressures.

Last week, the expert panel of the State Secretariat for Economic Affairs (Seco) updated its economic forecasts for the current and upcoming years. Economic expansion is expected to be stronger this year than previously thought, with the panel revising its forecast from 1.1 percent to 1.3 percent. However, the forecast for 2024 was lowered from 1.8 percent to 1.6 percent. Overall, the Swiss economy is growing, but this growth is historically below average.

These expectations have also had an impact on the Swiss stock market in recent weeks, particularly affecting smaller Swiss stocks (Small Caps). At the same time, they may have played a role in the interest rate decision of the Swiss National Bank (SNB). Last Thursday, the SNB surprisingly kept the benchmark interest rate at 1.75 percent, while many had expected a further increase to 2.0 percent. Additionally, the central bank indicated relatively little need for action in the coming months.

With the pause in the interest rate hike cycle, the SNB is in good company. Four out of five major central banks in industrialized nations have recently left their benchmark interest rates unchanged. This suggests an impending end to the global interest rate hike cycle.

Other Economic News:

• The United States faces the threat of another payment default, not due to reaching the debt ceiling but because of disagreements in budget planning for the fiscal year starting on October 1st. The competence lies with the US Congress. First, the House of Representatives must propose the twelve individual plans that will make up the overall budget plan. Then, the Democrats in the Senate must also approve. However, even the Republicans in the House of Representatives are already divided, with many points of contention, such as Ukraine aid, handling Trump’s investigation budget, or the planned budget deficit in general. A temporary solution until November 17th seems to be in sight.
• Economists predict a significant decrease in inflation in Germany. They expect that consumer prices in Germany rose by an average of only 4.6 percent in September. This would be the lowest figure since February 2022 and a significant drop from August when inflation stood at 6.1 percent. A significant factor in this decline is the removal of the 9-euro train ticket and the fuel discount introduced by the German federal government from July to August 2022. The first official estimate from the Federal Statistical Office will be published on Thursday.
• The Swiss National Bank will soon complete its Directorate. Antoine Martin will succeed Andréa Maechler, who announced her resignation in June. The 54-year-old from Vaud is currently working as a Financial Research Advisor on Financial Stability Policy Research at the US Federal Reserve Bank of New York. The economist will assume his new position in early 2024.