April saw Swiss annual inflation accelerate beyond expectations, climbing to 1.4 per cent from March’s 1 per cent, exceeding economists’ forecast of 1.1 per cent, as reported by Reuters citing data from the Federal Statistics Office on Thursday.
The uptick in inflation prompted a strengthening of the Swiss franc against both the euro and the dollar. Monthly price increases stood at 0.3 per cent, surpassing the 0.1 per cent forecast.
Despite this unexpected surge, economists still predict further interest rate cuts by the Swiss National Bank (SNB). Inflation has remained within the SNB’s target range of 0-2 per cent for 11 consecutive months, with markets pricing in a 60 per cent probability of a rate cut to 1.25 per cent at the upcoming meeting on June 20.
Economists argue that conditions are ripe for the SNB to adjust the policy rate again in 2024, possibly as early as the June meeting. However, despite April’s stronger-than-expected inflation, it does not signal entrenched inflationary pressures, such as those stemming from higher wages.
With the current policy rate at 1.5 per cent considered restrictive, economists anticipate a shift towards a more ‘neutral’ monetary policy by the SNB in 2024. A rate cut to 1.25 per cent in June seems probable, especially with expectations of the European Central Bank commencing its rate-cutting cycle around the same time.
