Swiss Inflation Perks Up in August

Prices in Switzerland increased by 0.5% from the year before in August, according to the Swiss Federal Statistical Office. That is an increase from the 0.3% rise in July, but still well within reasonable levels.

The Swiss economy has been in deflation since 2011, although year-to-date prices have risen modestly – by about 0.4% from 2016.

Average inflation in Switzerland, 2005-2017
Year over year increase in consumer prices, Switzerland, 2017.

Most economists attribute the recent deflation in Switzerland to an excessively strong Swiss franc which has been seen as a safe haven since the financial crisis and throughout periodic crises in the Eurozone. To offset the surge in foreign interest in the franc, the Swiss National Bank has spent CHF 630 billion to limit how strong the franc could become.

The number of Swiss francs one U.S. dollar will buy. When the exchange rate declines, the Swiss franc declines as well.
The number of Swiss francs that one Euro will buy. The chart shows the inverse strength of the Swiss franc. When the exchange rate declines, the Swiss franc strengthens.

With the overall European economy improving and fears subsiding, the Swiss franc is finally starting to weaken again – a positive sign for policymakers and an indication that moderate inflation has returned to Switzerland.

Swiss National Bank governing board member Andrea Maechler commented at a conference in Yverdon-Les-Bains, “Overall, the trends are pointing in the right direction for the Swiss franc, but it is too early to say whether these trends are sustainable. The situation remains relatively fragile.”

 

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