Swiss Inflation Holds Below 2% in Last Take Before SNB Sets Rate

Switzerland’s inflation rate stopped slowing in August, offering policymakers a final picture of domestic pressures before their quarterly decision on whether or not to raise borrowing costs.

(Bloomberg) — Switzerland’s inflation rate stopped slowing in August, offering policymakers a final picture of domestic pressures before their quarterly decision on whether or not to raise borrowing costs.

Consumer prices rose 1.6% in August from a year earlier, matching the previous month, according to Switzerland’s statistics agency. That falls short of the median estimate in a Bloomberg survey, which had predicted a drop. 

Underlying inflation, which strips out volatile elements like energy, slowed to 1.5 from 1.7%.

The outcome remains the lowest of any advanced economy, showcasing how Switzerland’s borders have sheltered it from the ravages of inflation elsewhere. Euro-region data on Thursday showed price growth stuck above 5%, including notably higher readings in neighboring Germany and Austria. 

The headline inflation gauge has now been below the 2% ceiling targeted by the Swiss National Bank for three months. Officials will need to gauge on Sept. 21 whether they see a need for another interest-rate increase to further tame such pressures. 

In June, President Thomas Jordan said that he “most likely” expects more tightening to be necessary. The outlook has eased since then, and economists now predict inflation to stay on target through 2025, even though increases in rents and electricity prices are expected. 

While a Bloomberg survey still forecasts a 25 basis-point hike in September, market bets estimate the probability of an increase below 50%. 

Since no rate setter has made a public appearance since early July, economists have little to go on with their forecasting for the decision other than guesswork. 

Veteran SNB watcher Maxime Botteron said in an interview that the probability for a further tightening step has decreased recently, through the comparatively large rate differential with the European Central Bank also gives officials room for such a move.

Based on the European Union’s harmonized measure, Swiss inflation was 1.9% in August, less than half the rate of the surrounding euro area. This large differential has persisted throughout the recent global inflation surge.

–With assistance from Kristian Siedenburg and Joel Rinneby.

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.