World Economy

Swiss Inflation Rate at 15-Month Low

Swiss Inflation Rate at 15-Month LowSwiss Inflation Rate at 15-Month Low

Switzerland’s inflation rate dropped more than expected to its lowest in more than a year, underscoring the central bank’s rationale for imposing a negative deposit rate.

Consumer prices declined by an annual 0.3 percent in December after a fall of 0.1 percent in November, the federal statistics office in Neuchatel said in a statement Saturday. That’s the lowest since October 2013 and weaker than the median estimate of minus 0.2 percent in a Bloomberg News survey of 12 economists.

“At the moment, we’ve got a big decline in crude prices and for the consumer that’s a good thing,” said David Marmet, economist at Zuercher Kantonalbank in Zurich, adding that oil trading companies in Geneva however wouldn’t be helped by a weaker oil price. That could negatively impact Switzerland’s aggregate output, he said. “For the central bank this means that the deflationary risks aren’t off the agenda.”

In a bid to ward off deflation, the Swiss National Bank has announced a negative deposit rate, designed to reinforce its three-year-old minimum exchange rate of 1.20 per euro. The Swiss negative rate takes effect on Jan. 22, the day the European Central Bank holds its next rate meeting and could announce purchases of government debt to stoke anemic inflation in the euro area.

Compared to a month earlier, Swiss consumer prices dropped 0.5 percent in December. That was “primarily due to lower prices for petroleum products, travel packages, medicines and clothing and footwear,” the statistics office said. For 2014 as a whole the average inflation rate was flat, it said.

 Deflation Risk

According to the European Union-harmonized measure, the Swiss inflation rate was minus 0.1 percent in December from a year earlier. That compares with minus 0.2 percent for the euro area in December.

SNB President Thomas Jordan said in an interview earlier this week that while Switzerland isn’t yet in a state of deflation, the risk of it has increased.

The SNB forecasts Swiss economic growth of about 2 percent this year, with consumer prices falling 0.1 percent. It sees inflation accelerating slightly to 0.3 percent in 2016.

Any decision by the ECB to start large-scale sovereign-bond purchases would benefit Switzerland because it would support its biggest destination for exports. Still, QE “affect the euro exchange rate, and that could be difficult” for the Swiss, Jordan told Swiss state television SRF this week.