Swiss CPI Remains Tempered

Inflation in Switzerland remains as a global envy. At 1.5% year-on-year and sequentially stable, or still moderating, the Swiss inflation rate continues to perform in its desired range as other advanced money center countries struggle to control their budgets, revive growth, and return to their pre-Covid inflation objectives.

Swiss growth remains moderate. The services sector underpins expansion while manufacturing in Switzerland occurs in the same global environment as for everyone else. That sector shows damped activity with a PMI reading indicating sluggish and contracting activity.

Swiss inflation trends reveal year-over-year inflation rates across CPI categories as higher in only 25% of them. Inflation rates over six months show more pressure with inflation accelerating in 75% of categories, but over three months conditions are stable with inflation acceleration in only 50% of categories balanced with deceleration.

That tempered behavior is not surprising because Swiss domestic ‘core’ inflation is even more tempered than its headline series. Swiss core inflation rises by 1.1% over 12 months and by less than 1% annualized over three months.

Swiss money supply went through some of the same contortions as other money center countries caught up in the battle with Covid. And while Swiss money supply surged then contracted, fiscal policy in Switzerland was much better contained overall.

Switzerland is a special country with a specialized trading by commodity. It is a more isolated country with controlled borders. It has not experienced undesired immigration. It does not have any ocean ports accessible to asylum-seekers. While it did experience a small bubble in inflation during Covid, that has gone away with little evidence that prices have been or that inflation has been marked or elevated in the wake of global ‘supply shocks.’ Switzerland presents a different case and framework in which to think about where inflation came from and why it has been so elevated in some places and not in others. The lack of fiscal excess in Switzerland is one response that sets it apart. Its relative isolation and the ability of the authorities to control what goes on inside the economy is another, a trait it shares with Japan, where weak-prices have been more of a problem that inflation. Of course, Japan experiences a declining population while Swiss population growth is under 1% per year. As economists look at global macroeconomic conditions, they will spend years trying to understand what impact Covid had and why economies have experienced different lingering effects in the wake of their policy responses.