Inflation up slightly in November
Published: Tuesday, Dec 3rd 2024, 12:10
Updated At: Tuesday, Dec 3rd 2024, 11:10
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Annual inflation in Switzerland rose slightly in November. However, it remains at the lower end of the National Bank's (SNB) target range of 0% to 2% and suggests that further key interest rate cuts can be expected.
Specifically, inflation rose to 0.7% in November from 0.6% in October, as reported by the Federal Statistical Office (FSO) on Tuesday. This means that Swiss consumer goods were on average 0.7% more expensive in November 2024 than in November 2023.
The increase is the first since April. It occurred despite the fact that prices fell slightly (-0.1%) compared to the previous month of October, mainly due to lower prices for foreign travel and hotel accommodation. This is explained by the so-called base effect. In the corresponding month of the previous year, prices had fallen by 0.2%, resulting in a slight increase in the annual rate this November.
A large part of the current inflation is attributable to residential rents. In November, rents rose by 0.5% compared to the last survey and are currently 3.4% higher than a year ago. If rents are excluded from the index, this leaves an annual inflation rate of just 0.1%.
Inflation remains very low
Despite the slight increase, inflation remains very low anyway - in October it fell to its lowest level since June 2021. The trend is also still downward, meaning that the SNB could even find itself back in an uncomfortable situation with deflationary tendencies in the medium term.
In any case, residential rents, which as mentioned still account for the majority of inflation, are likely to fall again soon. Although the mortgage reference interest rate was confirmed at 1.75% at the beginning of the week, it is likely to fall when it is next calculated at the beginning of March. Price reductions have also already been announced for electricity.
"The phase of low inflation is likely to continue in 2025," says UBS economist Alessandro Bee. At most, some counter-pressure will come from wage trends. The big bank's wage survey shows wage increases of 1.4 percent for 2025 - this should at least ensure that inflation does not fall too sharply and that deflationary expectations are already receiving a boost again, the expert hopes.
Swiss Life chief economist Marc Brütsch expects an average inflation rate of just 0.2 percent in the coming year, with negative inflation rates even possible over the summer months.
Negative interest rates again soon?
In any case, it seems fairly clear that there will be a further interest rate cut as early as next week at the SNB's quarterly monetary policy assessment - especially as the SNB itself had already held out the prospect of further cuts in September.
The question is at most whether there will be a reduction in the usual range of 25 basis points to 0.75 percent or whether a reduction of 50 basis points is to be expected. Most analysts are assuming a small reduction, but not Karsten Junius from J. Safra Sarasin. He expects a cut of 50 basis points to 0.5 percent and even expects key interest rates to remain at 0 percent until the summer.
For him, the risks to price stability are clearly on the lower side. Capacity utilization in the economy is below potential and the weak growth in the eurozone is weighing on the outlook for the export sector. An expansionary monetary policy therefore seems appropriate and the SNB should not wait any longer to implement it, he argues.
Negative interest rates are even slowly becoming an issue again. "We are not ruling out negative interest rates after June, even if we consider the hurdle to be high," said Junius, for example. Even SNB Chairman Martin Schlegel recently refused to rule it out. However, VP Chief Economist Thomas Gitzel believes that a key interest rate below the zero mark would initially be seen as a verbal intervention.
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