Swiss Inflation Falls to Lowest Level in Three Years

ZURICH (Reuters) – Swiss inflation has fallen to its lowest level in more than three years, government data showed on Thursday. Analysts indicated that further interest rate cuts by the Swiss National Bank (SNB) are virtually certain.

According to data from the Federal Statistics Office, Swiss consumer prices rose by only 0.8% in September compared to the same month last year, marking the weakest increase since July 2021.

Month-on-month prices decreased by 0.3%, attributed to lower costs of petrol, accommodation, and holidays.

In response to weak inflation, the SNB lowered interest rates to 1.0% last week, marking its third reduction this year and signaling that more cuts may follow.

SNB Chairman Martin Schlegel emphasized price stability and indicated that the risks of inflation are leaning towards the downside. In his first public address since taking the role, he noted that the SNB does not dismiss the possibility of moving interest rates into negative territory.

The SNB did not comment on the latest inflation figures. Markets currently assign an 82% probability for a 25 basis point cut in December, while an 18% chance is allocated for a 50 basis point reduction.

Karsten Junius, chief economist at J.Safra Sarasin, highlighted that inflation dynamics in Switzerland “remain alarmingly weak,” with import prices falling while domestic inflation is largely driven by rent increases. He stated: “Today’s figures show that interest rate cuts by the SNB remain necessary,” predicting a 25 basis point cut in December, with further reductions likely in March and possibly June of next year.

GianLuigi Mandruzzato, an economist at EFG Bank, echoed that low inflation supports the possibility of a 50 basis point rate cut in December, although he still expects a 25 basis point cut. However, he noted that the likelihood of the SNB’s policy rate hitting 0.50% by the first half of 2025 is increasingly likely.