Oil price as a decisive factor
The lower oil price is the main factor behind the sharp decline in Switzerland in the last period. Alessandro Bee, an economist at UBS, said that oil prices are significantly lower in 2023 than in June 2022. He indicates that the impact on the current inflation rate is 0.5 percentage points. Economists state that other reasons for the decline are the easing of supply bottlenecks, leading to lower car prices, and the strong franc. However, there were no obvious increases in prices for certain food items, restaurant events, or hotel stays.
However, continuous low inflation, over a longer period of time, is, as usual, a combination of different variables. In an international comparison, lower inflation also leads to lower interest rates. Therefore, Switzerland remains attractive for investors due to its combination of a stable currency, comparatively low inflation, and significantly lower interest rates for investments. The banking sector, which has recently been affected by volatility, is valued about 5% lower in the Swiss equity index than the Eurozone equity index by 9% and also less than that in the US.
Inflation continues
Thomas Gitzel of VP Bank also expressed the view that inflation has ended its ascent. According to the Bantleon Institute, it is possible to give the all-clear with regard to inflation. In this sentence, however, the Bantleon expert emphasises the word “can” because the inflation problem has not yet been solved. Last but not least, the SNB itself is responsible for part of the inflation, although it should be responsible for fighting it. Due to the increased interest rates, rents have risen since October, which will lead to a significant increase in inflation. In addition, the SNB’s action is causing persistently high wage settlements, which also increases price pressures.
Other economists are also critical of the SNB. According to Alexander Koch, an expert at Raiffeisen, there is no longer any reason for the SNB to be concerned about the risk of strong second- or third-round price effects.
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Nevertheless, most experts assume that the SNB will continue its interest rate policy. In part, there is also agreement on this. UBS expert Bee emphasised that it is still too early to eliminate concerns about second-round effects.
However, if the losses are substantial, this could lead to a loss of credibility for the SNB and a significant loss of the franc. Currently, however, there is still a low probability. In contrast, Fix shows that price increases in Switzerland have so far been significantly lower than in the euro area. Companies and consumers in Switzerland are therefore weathering the crisis-ridden times much better than their neighbours.
