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Economy in Brief

Swiss Inflation Is Swiss Inflation; Very Mild Acceleration
by Robert Brusca  October 4, 2021

Year-on-year the Swiss national inflation rate has been on the rise. But looking at the progression of inflation from 12-months to six-months to three-months, there is only a very modest inflation push under way. And while monthly inflation did flare broadly in August, that has not been the case in September as inflation has decelerated across categories except for clothing and footwear.

Inflation forces are stepping up for the HICP, for the Swiss domestic measure as well as for the domestic core measure and the series excluding ‘administered prices.’ A couple of aggregate measures for inflation are at or above 2% for Switzerland when annualized over three months but the true 12-month changes are still below a 1% pace.

Since January 2020, Swiss inflation has been running a compounded an annual rate of -0.2% per year based on the harmonized HICP pace. Core inflation has averaged +0.1%; this compares to EMU inflation where the HICP is running at a much higher compounded rate of 1.7%.

The virus and the economy
Beginning in mid-September, Switzerland began requiring Covid passports to be shown to access indoor areas of restaurants, cultural & leisure facilities, and several other events. It has taken a much more hands-on approach after some considerable tussling with the virus. Switzerland has weathered the covid process relatively well. If going back to the start, we find that Switzerland had a spike in deaths in March -May of 2020 then a larger spike to higher levels for November 2020- February 2021. Since then, the death rate in Switzerland has been low and stable with only a very minor kerfuffle in the death rate in September of this year. Switzerland has kept the virus in check, but its economy has paid the price. Switzerland’s first cantonal vaccinations began in late-December 2020 in the midst of its second wave of deaths and infections. Since then, the death rate has been brought down and has remained low and stable.

Even with its relative isolation, the covid disease did hit Switzerland hard and drove GDP down below trend. GDP remains below trend still. Employment levels remain impacted as well as the unemployment rate is still higher than it was pre-covid. Like in America, Swiss labor force participation rates have fallen and fallen sharply as some workers have simply withdrawn from the labor market altogether. Swiss incomes have been more or less maintained through the Covid period. And while retail sales have shown volatility, they continue to rise and have advanced above their pre-covid levels. In Switzerland the same theme plays out as in the U.S. that supply has been more affected than demand.

Swiss inflation
In part because of the economy slowing Swiss inflation has run cool. Swiss inflation, in fact, has barely topped 1.25% annually over the past decade and its current year-on year pace is below 1%. Covid brought a period of price level declines running from early-2020 through the first quarter of 2021. Swiss core inflation is still recovering after its own period of weakness and year-on-year declines, but the rate of increase there is still modest, below even 0.5% over 12 months. However, shorter calculations of inflation show signs of rising on the core measure as the domestic core Swiss measure is at 0.4% over 12 months, 0.8% over six months and 1.8% over three months, all annualized.

The chart for the Swiss domestic measure of headline and core inflation show that the headline and core really follow the same cycle with the headline simply running up to a higher high and down to lower lows. The Swiss core explains about half the variance in the Swiss headline inflation rate. Swiss inflation rates are now experiencing some minor pressures, but they are nothing like the inflation rates and pressures in the EMU or in the U.S.

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