TL;DR Breakdown
- Switzerland’s inflation rate in August remained at 1.6% compared to the previous year, consistent with the previous month.
- For three consecutive months, Switzerland’s headline inflation has stayed below the Swiss National Bank’s target ceiling of 2%.
Description
Switzerland’s inflation rate showed signs of stabilization in August, providing policymakers with a last look at domestic economic pressures before their quarterly deliberations on whether to increase borrowing costs. In August, consumer prices increased by 1.6% compared to the previous year, a rate identical to the previous month, as Switzerland’s statistics agency reported. However, this … Read more
Switzerland’s inflation rate showed signs of stabilization in August, providing policymakers with a last look at domestic economic pressures before their quarterly deliberations on whether to increase borrowing costs.
In August, consumer prices increased by 1.6% compared to the previous year, a rate identical to the previous month, as Switzerland’s statistics agency reported. However, this figure fell short of the expectations that anticipated a decrease in inflation.
Switzerland’s headline inflation has been stable below 2%
The underlying inflation rate, which excludes volatile elements like energy, eased to 1.5% from 1.7%. This figure remains the lowest among advanced economies, underscoring how Switzerland has been somewhat shielded from the high inflation elsewhere. Recent data from the Eurozone showed inflation levels above 5%, notably higher than in neighboring Germany and Austria.
Switzerland’s headline inflation gauge has been below the Swiss National Bank’s (SNB) target ceiling of 2% for three consecutive months. Officials will convene on September 21 to assess whether another interest rate increase is necessary to control these inflationary pressures further.
In June, President Thomas Jordan had expressed the need for further tightening. However, the outlook has since moderated, and economists anticipate that inflation will remain on target through 2025 despite expected rent increases and electricity prices.
While economists still predict a 25 basis-point interest rate hike in September, market indicators suggest the probability of an increase is below 50%. Given the absence of public appearances by rate-setters since early July, economists have limited information to base their forecasts on, leaving much to speculation.
Veteran SNB observer Maxime Botteron mentioned in an interview that the likelihood of another tightening step has decreased recently. However, the relatively large interest rate differential with the European Central Bank could provide room for such a move.
When measured using the European Union’s harmonized metric, Swiss inflation stood at 1.9% in August. This rate is significantly lower than half of the inflation rate observed in the neighboring euro area. This substantial differential in inflation rates has remained consistent amid the recent global surge in inflation.
Swiss and US inflation
The USD/CHF exchange rate has shown an upward drift following a series of economic data releases from the United States. The latest data indicates a decline in consumer confidence, which dropped to 106 in August after showing improvement in the two preceding months. Additionally, the data revealed that the country’s economy expanded by a modest 2.1% in the second quarter, following a 2.0% growth rate in the first quarter. While this growth figure is still positive, it falls slightly short of the initial estimate of 2.4%.
Further reports indicate that the US trade deficit expanded to over $90 billion in July. According to ADP, the private sector generated 177,000 jobs in August. Additionally, recent data showed that the country’s consumer expenditure (PCE) increased by 3.3%, a significant metric as PCE is the primary inflation gauge monitored by the Federal Reserve.
The upcoming crucial data point to watch for is the latest US non-farm payrolls (NFP) data. Economists anticipate that the unemployment rate will remain at 3.5% as the economy is expected to have added over 170,000 jobs. This data will provide further insights into the labor market and economic conditions in the United States.
The USD/CHF price has been gradually trending higher since the beginning of August. The pair established an ascending channel during this period, as indicated by the black lines. It has traded slightly above the 25-period and 50-period moving averages while remaining below the 50% retracement level which suggests a cautious upward momentum in the pair’s movement.
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