Swiss Inflation Slows With More Central-Bank Easing Expected

(Bloomberg) — Swiss inflation slowed in December, supporting the case for more easing in interest rates.

Consumer prices rose 0.6% from a year ago, Switzerland’s statistics office said. That matches the median estimate in a Bloomberg survey of economists and is down from November’s reading of 0.7%.

The weakening inflation was driven by a range of factors including cheaper international package holidays, medicines and vegetables. The core gauge — which excludes fresh and seasonal products as well as energy — also slowed. 

Tuesday’s number marks the fourth month with inflation below 1%, bringing the average for 2024 as a whole to 1.1%. The SNB anticipates it will slow to just 0.3% in 2025 and 0.8% in 2026. That helps explain why policymakers surprised with a stronger-than-expected half-point rate cut last month, with economists expecting another reduction in March.

What Bloomberg Economics Says…

“The decline in core and headline inflation in the last month of 2024 — despite upward pressures from energy — confirms the weakness in Switzerland’s underlying price gains. There’s more to come going into 2025, when we expect energy contributions to turn sharply negative — we see the headline reading dropping to 0.2% in January.”

—Maeva Cousin, senior economist. For full react, click here

As consumer-price growth has so far predominantly been driven by rents, the expected drop of a key reference rate influencing them is set to trigger a slowdown from around mid-2025. In addition, January will see electricity price cuts of 10% on average, according to the government. The Swiss system features highly regulated energy costs for households, with bills adjusted just once a year.

The SNB targets inflation of 0%-2%, giving it more leeway than other central banks to determine policy.

At least one more rate cut is likely, though economists expect officials to return to a more traditional 25 basis-point pace as the benchmark — currently at 0.5% — nears 0%. Some observers also say a drop to sub-zero rates is possible, given that SNB President Martin Schlegel has repeatedly highlighted negative borrowing costs remain in the toolbox if they become necessary for price stability.

Switzerland has one of Europe’s lowest inflation rates. Data from the euro area due later on Tuesday are expected to show consumer prices there rose 2.4% from a year ago in December. Based on the European Union’s harmonized measure, the Swiss saw an advance of 0.4% in that period.

–With assistance from Barbara Sladkowska and Kristian Siedenburg.

(Updates with Bloomberg Economics after fourth paragraph)

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