Inflation in September at lowest level for more than three years
Published: Thursday, Oct 3rd 2024, 11:00
Updated At: Thursday, Oct 3rd 2024, 11:10
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Annual inflation in Switzerland fell significantly in September. The main reason for this is the recent fall in oil prices, which made petrol, heating oil and diesel cheaper.
Specifically, inflation fell to 0.8 percent in September from 1.1 percent in August, as reported by the Federal Statistical Office (FSO) on Thursday. This means that Swiss consumer goods were still 0.8 percent more expensive on average than in the same month last year. Domestic goods continue to cost considerably more than a year ago (+2.0%), while imported goods (-2.7%) are significantly cheaper than a year ago.
The decline in inflation in September was clearly underestimated by the market. Some economists surveyed by the news agency AWP had even expected a slight increase compared to August.
Inflation has been on a clear downward trend worldwide for some time and is now at its lowest level in Germany since July 2021. Prior to this, it had risen to 3.5% (August 2022) in the wake of coronavirus and due to higher commodity prices following the start of the Russian war of aggression in Ukraine.
Compared to other countries, Switzerland has been in a much better position since the beginning of the phase of increased inflation - mainly thanks to a firmer franc, which makes imports cheaper. However, the differences have narrowed recently: in the eurozone, for example, inflation fell below the 2 percent mark for the first time in a long time in September at 1.8 percent, while the last known figure in the USA (August) was 2.5 percent. At its peak, it had been over 9 percent.
Petrol and heating oil significantly cheaper
The fact that inflation in Switzerland fell significantly in September is mainly due to a general price decline of 0.3% compared to the previous month of August. According to Raiffeisen economists, this is the sharpest monthly decline since April 2020. Package holidays abroad (-7.7%), the para-hotel industry (-11.2%) and air travel (-7.1%) in particular became cheaper.
People also had to pay significantly less for petrol, heating oil and diesel on a monthly basis. According to the FSO figures, energy and fuel prices were 1.6% cheaper in September. However, the year-on-year price decline is much more massive here: petrol was a good 7% cheaper than in September 2023, heating oil cost almost 21% less and diesel almost 9% less.
Year-on-year, more is being paid for residential rents in particular (+4.0%), mainly due to the two increases in the mortgage reference interest rate last year. However, with the latest interest rate cuts by the Swiss National Bank (SNB), this trend is likely to reverse soon and inflation could fall even further in the coming months.
Hardly any inflation without rents
If housing rents are excluded, annual inflation is already at a minimal 0.1 percent. This confirms that the dangers for price stability are currently clearly on the lower side again, says Karsten Junius from Safra Sarasin. Today's figures also show that further interest rate cuts by the SNB are necessary.
Last week, the SNB cut the key interest rate for the third time in a row by a quarter of a percentage point to 1.0% and adjusted its forecast for average annual inflation in the coming year downwards to a low 0.6%. It emphasized that "further interest rate cuts may be necessary in the coming quarters in order to ensure price stability in the medium term".
Middle East as the only risk
Alessandro Bee from UBS also expects this: Weak inflationary pressure combined with concerns about the economy in the eurozone should lead to two further interest rate cuts by the SNB in December 2024 and March 2025, he told AWP. Experts from Julius Baer and EFG Bank take a similar view.
Even if everything currently points to a further decline in inflation - mainly due to the strong Swiss franc - the opposite development cannot be ruled out entirely. Risks in this regard include a further escalation of tensions in the Middle East. "If this leads to a significantly higher oil price, inflation in Switzerland is also likely to trend significantly upwards again," emphasizes UBS economist Bee.
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