Inflation drops surprisingly in June
Published: Thursday, Jul 4th 2024, 11:20
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Annual inflation in Switzerland fell slightly in June. Economists see this as a positive surprise. However, they are not in agreement as to whether the SNB will cut interest rates again in the near future.
Annual inflation stood at 1.3% in June after 1.4% in the previous month of May, as reported by the Federal Statistical Office (FSO) on Thursday. This means that Swiss consumer goods were on average 1.3% more expensive than in the same month last year.
Most economists had expected the figure to remain unchanged. They are correspondingly pleased in their initial comments. "Inflation surprised again in June with very low figures", says Karsten Junius from Safra Sarasin.
"Inflation is in the Swiss National Bank's comfort zone," comments Thomas Gitzel from VP Bank. "Looking at today's inflation data, the Swiss monetary authorities can feel vindicated: The two interest rate cuts in March and June were definitely justified."
As is well known, the SNB is aiming for inflation of between 0 and a maximum of 2 percent.
One step or two?
Economists disagree on the question of whether and when the SNB will cut interest rates further. "The weak price pressure in Switzerland should continue to give the SNB scope to complete the reduction of key interest rates to a neutral level before the end of the year," says Raiffeisen chief economist Fredy Hasenmaile.
For many observers, this means one interest rate cut in September and then it's over.
For Junius from Sarasin, however, the current inflation figures have not only increased the probability of an interest rate cut in September, but also "that such a rate cut will not be the last in this cycle".
Stubborn inflation in services
But there are also cautionary voices. Céline Koster from the St. Galler Kantonalbank, for example, points to the "persistent inflation in services". The inflation rate for private services was a relatively high 2.7 percent. Renato Flückiger from Valiant Bank sees no basis for a further interest rate cut for precisely this reason.
However, Santosh Brivio from Migros Bank puts the trend in services into perspective. There is still no evidence of a wage-price spiral. "The fact that inflationary pressure is not higher in Switzerland is also due to moderate wage increases." It may be annoying for employees that not even inflation compensation is guaranteed in this country. "At the same time, these modest wage rounds prevent the emergence of a wage-price effect - the price level remains stable."
Exchange rate decides
According to several experts, the decisive factor for whether and when the next interest rate cut will take place is not inflation. "The exchange rate of the Swiss franc is likely to tip the scales," says Thomas Gitzel from VP Bank. New revaluations would therefore favor interest rate cuts.
Alessandro Bee from UBS takes a similar view: "More important for the Swiss National Bank's decision in September is the development of the Swiss franc and the monetary policy of other central banks."
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