Inflation remains at 1.3 percent in July
Published: Friday, Aug 2nd 2024, 13:10
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Annual inflation in Switzerland remained unchanged in July. Domestic goods are still significantly more expensive than a year ago, while imported goods are clearly cheaper. Further interest rate cuts by the SNB are to be expected.
Specifically, inflation in the reporting month of July was 1.3 percent, as in June, as reported by the Federal Statistical Office (FSO) on Friday. This means that Swiss consumer goods were on average 1.3% more expensive in July than in the same month last year. While domestic goods cost 2.0% more, imported goods were 1.0% cheaper than in July 2023.
Core inflation also remained constant in July and, at 1.1%, was even slightly lower than overall inflation. This excludes price changes for the food and energy segments, which are often very volatile. Central banks focus more on this figure than on the general inflation figure when combating inflation.
Among the main groups, prices for "Housing and energy" (+3.8%) in particular are still significantly higher than a year ago, but the categories "Leisure and culture" (+2.8%), "Restaurants and hotels" (+1.9%) and "Education" (+1.8%) also cost more. By contrast, the categories "Clothing and shoes" (-1.8%) and "Household goods" (-1.5%) are clearly cheaper than in July 2023.
Lower than the previous month
Meanwhile, prices fell slightly in July compared to the previous month. The national consumer price index (CPI), which is used to calculate annual inflation, fell by 0.2% to 107.5 points. According to the FSO, the decline is due to various factors, including lower prices for package tours abroad and air travel.
Prices for clothing and shoes, which were reduced as part of the clearance sale, also fell compared to June. In contrast, prices for the para-hotel industry and fruit and vegetables have risen, as have rents for private transportation.
Further interest rate cuts
Overall, the inflation trend in July came as no surprise and was in line with economists' expectations. Inflation is therefore also comfortably within the Swiss National Bank's (SNB) target range of 0 to 2 percent, albeit still at the upper end. In the year to date, it had initially fallen from 1.7% at the end of 2023 to 1.0% in March, only to rise again slightly in the months that followed.
Despite this rise, many market participants expect further interest rate cuts soon, even though the SNB already lowered its key interest rates twice in June and March. Looking at the inflation trend, the question arises as to why the SNB should not cut interest rates again in September, asks VP Bank, for example. There are hardly any arguments against it, says its chief economist Thomas Gitzel.
Above all, the renewed strength of the Swiss franc is an argument for further interest rate cuts. After a period of weakness in the first half of 2024, the local currency has recently strengthened significantly against the euro and the dollar.
At around 0.94, the EUR/CHF exchange rate is now a long way away from parity with the euro, which was almost reached in May. As is well known, a strong franc makes imports cheaper and dampens inflation accordingly.
Added to this is the fact that the US Federal Reserve and the European Central Bank (ECB) are also likely to cut interest rates in the not too distant future. If the SNB did not then also cut interest rates, this would put additional upward pressure on the Swiss franc due to the lower interest rate differential.
©Keystone/SDA
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