Swiss Inflation Slows, Likely More SNB Cuts

Swiss inflation slowed to a three-year low in September, supporting the likelihood of more rate cuts by the Swiss National Bank (SNB). Consumer prices rose 0.8% from a year ago, much lower than the 1% median estimate in a Bloomberg survey and compared with 1.1% in August. Costs for holidays, air travel, gasoline, heating oil, and diesel fell, offsetting higher charges for clothing and footwear.

The core reading, excluding fresh and seasonal products as well as energy, also retreated to 1%. Switzerland is in a cycle of rate reductions and disinflation, similar to the surrounding euro area. The SNB lowered borrowing costs for a third time last week, with the new president, Martin Schlegel, indicating that more cuts are likely.

In a recent speech, he highlighted that Swiss consumer-price growth is currently driven exclusively by services, while goods costs are dropping. About half of the remaining inflation is due to rents. Economists point out that the strong franc is dampening inflation.

Swiss inflation supports more rate cuts

“The SNB may have no choice but to keep cutting rates unless the CHF reverses course, which seems unlikely for now,” Pictet’s Frederik Ducrozet wrote on X. Lower SNB borrowing costs are also expected to reduce a key reference rate for rents, likely leading to a drop in housing costs from around mid-2025.

Meanwhile, wage increases have stabilized below the upper end of the central bank’s 0-2% target for inflation. However, Swiss households are facing price pressures that aren’t captured in the official inflation measure. Health insurance premiums are set to rise by 6% next year but aren’t part of the gauge, which only includes doctors’ bills and other actual costs.

Switzerland has one of Europe’s lowest rates of consumer-price growth. Data from the euro area showed inflation there dropped below 2% for the first time since 2021, but still came in at 1.8%. Based on the European Union’s harmonized measure, the Swiss saw an advance of 0.9% in the period.

An increasing number of economists are warning of the growing possibility of undershooting the SNB’s target range. “Deflation is a real risk in Switzerland,” said Oddo BHF’s Arthur Jurus.