Inflation slowing in Switzerland, but prices continue to soar 

KEYSTONE

The rate of inflation in Switzerland has fallen steadily in recent months, but the battle against the high cost of everyday goods seems far from won. Prices for meat, cheese and coffee, as well as electricity and travel, continue to strain consumers' wallets. 

In mid-March, the Swiss National Bank (SNB) took steps to keep consumer prices under control by making a surprise cut in its key interest rate. This decision took into account “the easing of inflationary pressure and the stronger Swiss franc”. The Swiss central bank had taken the view that “the fight against inflation over the last five half-years has been effective”. 

In fact, year-on-year inflation slowed to 1.0% in March, after having risen by 1.2% in February, 1.3% in January and 1.7% in December. On a different basis of calculation, however – compared with January 2022 before the outbreak of war in Ukraine, which sent prices soaring – the picture is different. 

According to data from the Federal Statistical Office (FSO) analysed by AWP, inflation reached 5.3% over the period from January 2022 to March 2024, representing an annualised trend of 2.4%. 

Poor harvests 

Over this period, food prices – one of the largest household expenditure items at almost 10% – soared by 7%, particularly those for meat (+4.2%), cheese (+9.2%), fruit and vegetables (+3.5%), sugar (+23.5%) and coffee (+9%). 

Accounting for almost a fifth of household spending, rents (+4.6%) also rose, as did clothing (+11.5%), electricity (+47.9%), natural gas (+26%), fuel (+4.4%) and package holidays (+28.1%). The only surprise was the fall in the price of medicines (-5.5%). 

 While the rise in the cost of certain agricultural products can be explained by poor harvests, particularly for sugar and coffee, the situation is different for other product groups. 

In the case of energy prices, which retreated on the wholesale markets after soaring following the start of the Russian invasion of Ukraine, “tariff revisions are periodic rather than continuous” and “have not been passed on to consumers”, pointed out Arthur Jurus, chief strategist at private bank Oddo BHF Switzerland. “Consumer prices react more quickly and strongly to price rises on the financial markets, but much less to price decreases,” he stated. 

According to the expert, “since January 2022, we have seen two breaks with the trends of the last 20 years: the deflationary trend in food prices, observed for 20 years until the Ukrainian crisis, is behind us”. As for rents, they are “in the process of catching up with their historical trend of two decades and accelerating further”, Jurus explained. 

There are many reasons for the soaring prices of package holidays. Andrea Beffa, Director of the Swiss Travel Federation (FSV), attributes it to the rising cost of fuel, particularly less-polluting jet fuel, and personnel. Lack of capacity on air routes and difficulties in delivering aircraft spare parts are creating a shortage on the supply side and also pushing up prices for travellers, she said. 

“The peak (in prices) should be reached in 2024”, estimated Beffa, adding that air fares should stabilise at last year’s level. 

Reduced VAT rate 

For its part, Switzerland’s consumer association for the French-speaking part (FRC) said it was “concerned about the impact of these price rises on consumers, particularly on less well-off households”. 

“It is difficult (…) to judge whether these price rises are justified without full transparency of production costs and company margins,” said Jean Busché, head of economics and new technologies at the FRC. But “price rises are often passed on directly to consumers in order to maintain high margins, which is particularly worrying when it comes to essential goods such as food”, he added. 

The organisation is calling for “greater transparency in prices and distributor margins” and considers it “essential to adopt targeted measures focusing on non-discretionary items of expenditure in order to reduce the cost of living for the least well-off households”. At parliamentary level, the FRC is backing the application of the reduced VAT rate on electricity, a moratorium on rising health premiums and a drastic reduction in public transport fares. 

Adapted from German by DeepL/kc/ac 

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