(Bloomberg) -- Swiss inflation weakened to the slowest pace in more than three years, pointing to further monetary easing by the country’s central bank.
Consumer prices rose 0.8% from a year ago in September, Switzerland’s statistics office said Thursday. That’s much lower than the 1% median estimate in a Bloomberg survey and compares with 1.1% in August.
Costs for holidays and air travel fell, as did prices for gasoline, heating oil and diesel, offsetting higher charges for clothing and footwear, according to a statement. The core reading — excluding fresh and seasonal products as well as energy — also retreated and now is at 1%.
Like the euro area surrounding it, Switzerland is in a cycle of rate reductions and disinflation. The Swiss National Bank lowered borrowing costs for a third time last week, with the central bank’s new president, Martin Schlegel, saying that more cuts look “likely.”
In a speech on Tuesday, he highlighted that Swiss consumer-price growth currently is driven exclusively by services, while goods costs are dropping. About half of the remaining inflation is due to rents, he said.
What Bloomberg Economics Says...
“Swiss inflation dropped below the mid-point of the Swiss National Bank’s 0%-2% target in September — and there’s more downside risks ahead amid lower electricity costs and a strong currency weighing on imported goods prices.”
—Maeva Cousin, senior economist. Click here for full REACT
“The large downward surprise in September inflation points to the question of whether the SNB will cut rates by 25 or 50 basis points in December,” said GianLuigi Mandruzzato, a senior economist at EFG Asset Management in Zurich. “The chances that the SNB policy rate will bottom at 0.5% in the first half of 2025 are clearly rising.”
He added that the reading is influenced by a favorable base effect in energy prices, which is set to fade over the remainder of the year. After that, however, electricity charges are set to drop some 12% in January, with changes to Swiss consumers’ power bills only allowed once a year and regulated by a government agency.
Other economists pointed to how the strong franc is dampening inflation.
“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, which will likely see housing costs drop from around mid-2025. Meanwhile, wage increases have stabilized below the upper end of the central bank’s 0-2% target for inflation.
Still, 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.
The country 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,” Oddo BHF’s Arthur Jurus said.
--With assistance from Joel Rinneby and Kristian Siedenburg.
(Updates with comments from economists starting in sixth paragraph.)
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