Swiss inflation falls to three-year low in October
Published: Friday, Nov 1st 2024, 12:50
Updated At: Friday, Nov 1st 2024, 12:20
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Annual inflation in Switzerland fell surprisingly in October. In particular, the marked fall in the price of petrol, heating oil and diesel slowed down inflation. Without the sharp rise in rents, inflation would even have been slightly negative. This increases the pressure on the SNB to cut interest rates further.
Overall, inflation fell to 0.6 percent in October from 0.8 percent in September, as reported by the Federal Statistical Office (FSO) on Friday. This means that Swiss consumer goods were on average 0.6 percent more expensive than in the same month last year. Domestic goods continue to cost significantly more than a year ago (+1.8 percent), while imported goods (-3.1 percent) are still clearly cheaper than a year ago.
The fall in inflation in October comes as a surprise. Most of the economists surveyed by the news agency AWP had expected stagnation, with some even expecting a slight increase.
Deepest beach for over 3 years
The downward slide continues. Inflation has fallen to its lowest level since June 2021. After that, the end of the coronavirus pandemic and the Russian invasion of Ukraine had boosted prices. The peak was reached in August 2022, when annual inflation shot up to 3.5%.
However, prices abroad have galloped even faster than in Switzerland. The fact that Switzerland is in a better position is mainly due to the strong franc, which makes imports cheaper. In the eurozone, inflation accelerated to 2.0 percent in October from 1.7 percent in September. In the USA, consumer prices climbed by 2.4% year-on-year in September, which was only slightly less than in August.
Price slump for heating oil
The significant fall in inflation in Switzerland is primarily the result of the slump in oil products. The price of heating oil has plummeted and is now almost a quarter cheaper than a year ago. And car drivers are happy about the significantly lower prices of diesel (-11.7%) and petrol (-8.3%).
Important healthcare (medication or hospital stays) also became cheaper. Lower prices for cars, motorcycles, bicycles and flights also curbed inflation. Clothes were also cheaper.
On the other hand, people had to pay 4% more year-on-year, particularly for residential rents. This is 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 should fall even further in the coming months.
Inflation in Switzerland is now well below the SNB's forecasts, commented economist Arthur Jurus from Oddo BHF. The SNB expects inflation in Switzerland to reach 1.2 percent this year and 0.6 percent in 2025.
No inflation without rents
If residential rents are excluded, annual inflation in October was even negative at -0.1%. This is the first time it has slipped below zero since March 2021. This is worrying, commented economist Karsten Junius from Bank J. Safra Sarasin, who, like other economic experts, now expects the SNB to cut interest rates further.
"Today's data makes it clear that the SNB will have to become more expansionary by lowering key interest rates by at least 25 basis points in December and possibly reactivating its foreign exchange market interventions as soon as headline inflation falls further," Junius said. This could be the case if the lower electricity prices come into force in January. Currently, electricity prices are still almost 18 percent higher than in the previous year.
Junius forecasts interest rate cuts of 0.25 percentage points at each of the next three SNB meetings. This would bring the key interest rate in Switzerland down to 0.25 percent next June. However, the current key interest rate of 1.0 percent is already very low and leaves little room for easing if it is to remain in positive territory, according to Deutsche Bank.
Other economists believe that the SNB will even lower the interest rate by half a percentage point at its next meeting in December. This would avert the danger of temporary deflation.
©Keystone/SDA
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