(Dec 3): Swiss inflation accelerated slightly after retreating for three months, sustaining the case for a Swiss National Bank (SNB) interest-rate cut next week.

Consumer prices rose 0.7% from a year ago in November, Switzerland’s statistics office said. That’s in line with the median estimate in a Bloomberg survey of economists and just above October’s 0.6%.

Costs for rents increased, as did prices for clothing and air transport, while cars, fruit and vegetables incurred lower charges, according to a statement. The core reading — excluding fresh and seasonal products as well as energy — also ticked up.

The SNB is widely expected to deliver a fourth consecutive rate cut on Dec 12 as the strong franc deflates the prices of imports. Policymakers have highlighted that inflation is “comfortably” in the central bank’s 0-2% target range, and Tuesday’s reading marks the third month it’s been below 1%. 

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 on average 10%, according to the government. The Swiss system features highly regulated energy costs for households, with bills being adjusted only once a year.

“For the SNB, which has become increasingly concerned about inflation sliding toward the lower end of its 0% to 2% target, this temporary increase won’t offer much relief. Combined with slowing growth, a clouded outlook for the export sector and upside risks to the franc against the euro in a context of heightened political uncertainty in France and Germany, we see the SNB cutting rates again by 25 basis points each in December and March,” said Maeva Cousin, senior economist at Bloomberg Economics.

SNB president Martin Schlegel also said last week that economic weakness at key trading partner Germany weighs on Switzerland’s industry. This could further add to the case for another rate reduction.

Economists currently expect the central bank to cut twice more, taking down its key rate to 0.5% by March from the current level of 1%. Some observers also deem a drop to 0% possible, given that 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 showed consumer prices there rose 2.3% from a year ago in November. Based on the European Union’s harmonised measure, the Swiss saw an advance of 0.7% in the period.

Source: Theedgemarkets