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Swiss Inflation Holds Steady as SNB Ponders Next Rate Cut

(Swiss Federal Statistical Office)

(Bloomberg) -- Swiss inflation held steady in July, pointing to further easing by the country’s central bank. 

Consumer prices rose 1.3% from a year ago, the statistics office said Friday. That’s in line with economists’ estimates and below the SNB’s forecast of 1.5% for the third quarter. 

Package holidays, air travel and clothing saw prices fall, while the costs of hotels and fruit and vegetables rose, according to a statement. The core reading excluding fresh and seasonal products as well as energy was unchanged at 1.1%.

The Swiss franc was little changed after the data, trading flat on the day at around 0.9420 per euro, near its strongest in six months. The currency has gained around 4% over the past four months as investors unwound carry trades, which are often funded by selling the low-yielding franc.

The Swiss National Bank kicked off monetary easing earlier than global peers and has reduced borrowing costs at both of this year’s decisions. It’s expected to deliver a third move when officials meet next in September, with about two thirds of economists in a Bloomberg survey predicting such a step.

What Bloomberg Economics Says...

“Swiss headline inflation remained comfortably within the SNB’s 0% to 2% target range in July and seems on track to undershoot the central bank’s latest forecast for 3Q24. This vindicates the SNB’s decision to cut rates twice already, and keeps another rate cut firmly on the table for 2024. Our current view is that it will come in December, but persistently low inflation could bring that move forward to September.”

—Maeva Cousin, senior economist. For full react, click here

Slow inflation and upward pressures on the franc help cement this outlook. Analysts are particularly wary of a potential currency boost when the European Central Bank — which meets twice as often as Swiss policymakers — catches up with SNB rate cuts. 

Policymakers expect consumer-price growth — mainly driven by domestic services — to average 1.5% in the third quarter, according to the SNB’s latest forecast. It’s then seen to slow, reaching 1% in 2026. Without the rate cuts, there would have been an even more benign outlook, President Thomas Jordan said in June.

Switzerland has one of Europe’s lowest inflation rates. Data from the neighboring euro area showed price growth picked up slightly there to an annual 2.6% in July. Based on the European Union’s harmonized measure, the Swiss saw an advance of 1.2% in the period.

--With assistance from Barbara Sladkowska, Mark Evans, Libby Cherry and Naomi Tajitsu.

(Updates with franc in fourth paragraph)

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