Market Analysis

Swiss Inflation Plummets to Its Lowest Level in Two and a Half Years

Amos Simanungkalit · 04 Apr599 Views

In March, Swiss inflation saw a notable decline, hitting its lowest point in two and a half years. This supports the recent decision by the Swiss National Bank (SNB) to implement its first interest rate cut since 2015.

Official data released on Thursday revealed that consumer prices only increased by 1% compared to March 2023, marking the slowest rate of increase since September 2021 and down from 1.2% in February. This aligns with the SNB's target range of 0-2% for inflation, a trend that has persisted for the past 10 months. Predictions from a Reuters poll had estimated a slightly higher reading of 1.3%.

The Swiss economy has been insulated from inflationary pressures largely due to the strength of the franc, with imports experiencing a decline in prices by 1.3% in March. Notably, the cost of food, as well as that of restaurants and hotels, decreased during this period.

In response to the low inflation environment, the SNB made the decision to cut its key interest rate to 1.5% in March. This move was justified by SNB Vice Chairman Martin Schlegel, who highlighted the lack of inflationary pressure as a key factor. Analysts polled by Reuters anticipate further rate cuts throughout the year.

According to data from the Federal Statistics Office, there was no change in month-on-month prices. While another month of low inflation is likely to reassure the SNB about its rate cut decision, experts suggest that it's premature to determine the impact on the next policy decision, slated for June.

UBS economist Maxime Botteron emphasized that the SNB will closely monitor the inflation situation in May, particularly considering the potential impact of increased rents in Switzerland.

Furthermore, the SNB's decision may also be influenced by actions taken by the European Central Bank (ECB) and the Federal Reserve (Fed). If these central banks opt to cut rates, there's a higher likelihood of the SNB following suit to prevent the franc from appreciating further. Botteron predicts that the SNB will reduce rates to 1.25% in June and to 1% in September.