SNB Does Not Expect A Price Spiral

Fri, Jun 21st 2024

SNB reports controlled inflation and praises disciplined wage and price management, resulting in a reduced key interest rate.

The Swiss National Bank (SNB) has already tamed inflation in Switzerland again. The currency guardians see no signs of inflation flaring up again. And this is due not least to the discipline of companies and employees.

“The second-round effects are somewhat less pronounced than we recently assumed,” said Thomas Jordan on Thursday at his second last press conference as Chairman of the SNB Governing Board. He sees few signs of a so-called wage-price spiral.

For example, wage development in Switzerland has remained “reasonable”, said Jordan. But there was also praise for the companies: According to the SNB chief, there was “less transmission” of higher costs to sales prices.

The SNB is not worried by the fact that inflation in this country recently rose again to 1.4 percent in May. This is because rising residential rents have contributed around half of this increase.

“This contribution is likely to decrease again over time,” said Jordan, referring to the reference interest rate for residential rents, which has been stagnating for the past six months and to which landlords must align themselves.

Falling inflationary pressure enabled the SNB to lower its key interest rate again. It now stands at 1.25 percent, down from 1.50 percent previously. As usual, however, the central bankers are remaining tight-lipped about future developments.

Jordan’s only statement on this: “Even with the lower key interest rate, we are not operating in an expansionary environment.” This is because inflation is low and pointing downwards. The inflation forecast is the SNB’s most important indicator for the future direction of interest rates.

©Keystone/SDA

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