The Swiss Times - Swiss News in English

How Switzerland has avoided sky-high inflation

  • By The Swiss Times
  • 27 February 2023
Switzerland has managed to keep inflation under 3.5% since the 1990s while bigger countries are currently looking at double-digit rates. This is thanks to regulations and practices the country has had in place for decades.
How Switzerland has avoided sky-high inflation

Switzerland remains an island in the land of inflation: Europe.

Coming off a year of war, nations around the world are struggling with 9% (U.S.), 10% (E.U.),  and even 11% (U.K.) inflation. Meanwhile, Switzerland’s inflation rate hovers around 2%. How does the country do it? And can it keep inflation low moving forward?

A ‘safe haven’ in the global storm

While Switzerland did hit a 29-year peak of 3.5% in 2022, the small Alpine nation has managed to keep inflation mostly at bay while its neighbors drown in rising prices for groceries, electricity, gasoline and more. (Read more: How inflation will affect you in 2023).

The strength of the country’s currency, the Swiss franc, is one of the main reasons the Swiss have been spared skyrocketing inflation. While many currencies’ values dwindled against an appreciating U.S. dollar, the Swiss franc held steady thanks to the Swiss National Bank’s (SNB) reserve of bonds, gold, and other currencies in its vault. Switzerland has long been a “safe haven” currency.

That said, the U.S. dollar is also considered a “safe haven” currency, yet it has experienced a roller coaster of inflation since 2020.

Switzerland has managed to sidestep those wild peaks mostly because it exports more than it imports; and, its exports tend to be more stable, higher value goods. Switzerland exports about CHF287 billion in goods and service per year – things that are less susceptible to price fluctuations such as luxury watches, pharmaceuticals and banking services. Meanwhile, the country imports about CHF284 billion per year, mostly mass-produced, lower-margin goods like cars and food from its neighboring EU countries. A stronger Swiss franc and a weaker Euro during the last two years has created an effective discount on those imported services and goods.

Additionally, Switzerland employs tight price controls on the price of goods and services, meaning that they are not subject to inflation. In fact, nearly one-third of all goods and services are subject to national price controls, which is more than any other European country. Shopping at a Swiss grocery store has become increasingly more expensive – about 4% more expensive in December 2022 than in January 2022. During that same period, food prices have soared by nearly 20% in Germany, 16% in the U.K. and 11.9% in the U.S. Domestic Swiss products such as milk, cheese and apples are priced more favorably than imported goods; which, in turn, stimulates the Swiss economy.

How Switzerland has avoided sky-high inflation

Energy bills keep getting heftier in Switzerland, but remain far below those in the U.K. and Italy.

A secure energy supply

Compared to many of its neighbors, Switzerland is much less reliant on oil and gas imports – and therefore, not as affected by Russia’s war with Ukraine. Why? For starters, Switzerland relies largely on renewable hydropower, which works well in a country of many mountains and 1,500 lakes.

In addition, Swiss energy suppliers are publicly owned, so they are protected from most market volatility thanks to financial safety nets (Read more: What we know about Switzerland’s biggest energy producer).

Still, Switzerland has not been immune to energy price hikes. The country saw a 16.2% increase in energy prices by the end of 2022 and expects prices to rise another 27% over the course of 2023. An average Swiss household pays about CHF1200 per month in energy costs. Meanwhile, countries who have been reliant on Russia saw their energy prices spike to 25% (Germany) and 30% (Netherlands) in 2022. The U.K. and Italy have topped the list with energy prices hikes as high as 64.7%

How Switzerland has avoided sky-high inflation

Despite American compaints, Swiss eggs are often the most expensive in the world at 6.18 CHF for a dozen.

It’s already expensive 

Finally, Swiss citizens feel less impacted by skyrocketing global inflation rates because they already live in one of the most expensive countries in the world. Zurich and Geneva regularly top the world’s most expensive lists for rent, hamburgers, you name it. In turn, Swiss salaries are some of the highest in the world to offset high living expenses. (Read more: Why your Swiss ski trip just got a lot more expensive).

“Because people are on average quite rich, the share of food in the overall budget of households is not as big as maybe in other countries,” University of Zurich economics professor Tobias Straumann told CNBC. The Swiss “have inequality, of course. But, from an international perspective, we have, I think, a very well-functioning social policy,” he added.

While the SNB says it expects inflation to hover around 2.4% in 2023 before dropping to the targeted 1.8% in 2024, Swiss citizens will manage.

“Even if we have a kind of recessionary scenario, people are still coming in, and that, of course, stabilizes demand,” Straumann said, referring to Switzerland’s participation of Europe’s free people movement for employment.

This article may be shared and re-published on other websites without our permission, so long as it links back to the original page.

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