The Swiss Times - Swiss News in English

Inflation down in February despite higher rents

Updated at 04 Mar 2024 11:30 am

Inflation in Switzerland continued to fall in February and is now at its lowest level since October 2021. Compared to the previous month of January, however, consumer prices have risen significantly.

Annual inflation fell to 1.2% in the reporting month of February 2024 from 1.3% in January, as reported by the Federal Statistical Office (FSO) on Monday. This means that Swiss consumer goods were 1.2% more expensive in February than in the same month last year. Inflation was 1.9% for domestic goods and -1.0% for foreign goods.

The overall figure was slightly higher than analysts' estimates: This was because they had forecast a fall in inflation of up to 0.9%. The significant increase in prices compared to the previous month was slightly underestimated.

Rents and air traffic

The national consumer price index (CPI) rose by 0.6% to 107.1 points in February compared to January. According to the FSO figures, the increase is due to various factors. Residential rents, for example, which have a relatively high weighting in the index at just under a fifth, rose by 0.8% compared to the last survey. Air transport prices even rose by a high 17.7%, although they only have a low weighting in the index.

Prices in the para-hotel industry (+17.4%) and for package tours abroad (+5.4%) also climbed. According to the figures, prices for berries (-15.2%) and beef (-1.7%) fell last month, as did those for facial care products and make-up (-4.3%).

The fact that annual inflation has fallen compared to the previous month despite the sharp price increases is mainly due to the base effect. In February 2023, prices actually rose by 0.7% compared to the previous month, which is more than this February.

No rapid interest rate cut likely

With the latest decline, the trend in inflation continues. Inflation had already fallen significantly from 1.7% to 1.3% in January. Inflation in Switzerland peaked at 3.5% in the summer of 2022 and then fell below the 2% mark in June 2023 for the first time since the beginning of 2022.

It is therefore once again comfortably within the range of 0 to 2% targeted by the Swiss National Bank (SNB). However, analysts do not expect the Swiss monetary authorities to make their first interest rate cut at their next monetary policy assessment in just over two weeks' time.

Despite the recent decline, the danger of inflation has not yet been averted, says Thomas Gitzel from VP Bank. Although there are still important inflation-dampening base effects at work in energy and food prices, the opposite is the case in the services sector and especially for rents. This is precisely why the SNB should proceed cautiously with interest rate cuts, he says.

Only after Jordan's resignation?

Alessandro Bee from UBS also sees it this way: the slightly higher than expected inflation today and the slightly better GDP figures last week do not make a rate cut by the SNB in March any more likely. Although such a cut cannot be ruled out, the UBS base scenario remains June for the first cut.

With regard to rents, Fredy Hasenmaile from Raiffeisen also points out that the CPI only includes the effects of the first reference interest rate increase for the time being. The increases from the second rise last December, which will take effect in April, will not be included in the inflation rate until May. He therefore assumes that inflation will move more towards the upper end of the target range again later in the year.

Meanwhile, analyst Gitzel even brings the resignation of SNB Chairman Thomas Jordan, which was announced last Friday, into play in his considerations. Jordan probably wants to see all inflationary risks averted before he leaves office in September. He could therefore leave the easing of monetary policy to his successor, according to the opinion.


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