Swiss inflation surprised on the downside in February, but temporary forces look set to push it higher over the coming months. However, with underlying price pressures likely to remain much weaker, the SNB will keep its policy rate rooted at a record low for the foreseeable future.
Looming pick-up in inflation won’t faze the SNB
- Swiss inflation surprised on the downside in February, but temporary forces look set to push it higher over the coming months. However, with underlying price pressures likely to remain much weaker, the SNB will keep its policy rate rooted at a record low for the foreseeable future.
- Data released this morning show that the headline inflation rate in Switzerland was unchanged at -0.5% in February (see Chart 1), which was weaker than our and the consensus forecasts (CE: -0.1%; consensus: -0.3%). As expected, energy prices provided the main boost to the headline rate; the energy and fuels component jumped from -5.9% in January to a 13-month high of -1.9%. (See Chart 2.)
- However, this was offset by declines in other components, particularly the prices of furniture and food. As a result, the core measure, which excludes fresh products, energy and fuel, also came in weaker than we had expected. Whereas we had pencilled in a rise into positive territory for the first time since February 2020, it fell back into negative territory, from zero in January to -0.3%. (Again, see Chart 1.)
- As elsewhere, global supply shortages and base effects from energy prices are likely to push inflation higher in the coming months. The pick-up in the input prices component of the Swiss manufacturing PMI is consistent with the headline rate rising to about 1.5% in Q2. (See Chart 3.) Given the recent falls in the franc against the euro, the drag from previous gains in the currency will ease this year too. (See Chart 4.)
- That said, these upward influences should fade in the second half of the year and will not change the equation for Swiss policymakers, whose boat is tied as firmly as ever to that of the ECB’s. We expect the ECB to look through the temporary rise in euro-zone inflation and to keep rates low for a very long time, and so the stage is set for the SNB policy rate staying on hold at -0.75% until later this decade at least.
Chart 1: Switzerland CPI Inflation (%)
Chart 2: Switzerland Energy & Fuels (% y/y)
Chart 3: CPI Inflation & PMI Input Prices
Chart 4: Imported Goods Inflation & Exchange Rate
Sources: Refinitiv, Capital Economics
David Oxley, Senior Europe Economist, email@example.com