News & Analysis

Swiss inflation data out this morning is unlikely to shift the balance for the SNB’s upcoming policy announcement on September 21st.

Headline CPI marginally overshot expectations in August with a print of 1.6% YoY, unchanged from July but 0.1pp above pre-release consensus. Core inflation did meet expectations though, falling from 1.7% to 1.5%, suggesting that underlying inflation pressures continue to ease. For the SNB, this leaves inflation continuing to track below forecast, and with growth conditions in both Switzerland and in Europe easing faster than expected, this leaves the door open for a pause in monetary tightening. As we set out in our preview, this decision is finely balanced. Especially given the SNBs relative intolerance of inflation compared with other major central banks, we would not be at all surprised if a final rate hike was the outcome of the meeting in a few weeks’ time.

But in our view, softening data should make the current rate of 1.75% the peak for this hiking cycle, and today’s data adds to that view.

Looking at the details of the release, prices rose by 0.2% in August, compared with a 0.1% fall in the previous month. Much of the upwards contribution to rising prices was provided by petroleum products, where prices increased by 5.8% in the last month. Housing rental costs too provided a significant contribution, accounting for 18.6% of the consumption basket, this rose by 0.4% in August. Other notable monthly increases were seen in the prices of clothing and footwear which increased by 3.2%, and education, up 1.8%. In contrast, falls were largely concentrated in services components, with transport down 0.4% and recreation and culture prices falling 0.3%.

When stripping out volatile components to get a gauge of underlying inflationary pressures, the picture looks much softer with core inflation only rising by 0.1% and services inflation unchanged in August.

The latter is particularly interesting given the expressed concern from SNB board members around the possibility of second round inflation effects. Indeed, an expected rebound in inflation heading into the end of this year and signs of sticky core inflation led SNB President Jordan to signal back in June that further rate hiking was “most likely”. On the basis of recent releases, this does not look likely to us. Granted, the labour market remains tight, with the unemployment rate standing at 1.9%, and survey data from KOF suggesting that firms expect wage growth of 2% over the coming twelve months. But this still looks very much consistent with inflation remaining within the SNBs 0-2% inflation tolerance band, and with July manufacturing PMIs falling unexpectedly sharply from 44.9 to 38.5 alongside growing signs of contraction in Europe, risks to the inflation outlook appear increasingly skewed to the downside.

For markets, this morning’s release has seen a modest increase in expectations for hiking at the September policy meeting, increasing from 28% yesterday to stand at around 40% following the print.

Notably though, this is significantly down on where they had been immediately following the SNBs previous policy announcement, when the odds of a September hike had stood at roughly 75%. This uptick in hiking prospects has seen EURCHF tick down a fraction in early trading. But markets largely seem to share our view that this morning’s data changes little for the SNB. The decision remains hard to call, with arguments supporting both a hike and a hold, but on balance we continue to look for no change in interest rates on September 21st.

Headline Swiss inflation marginally overshoots economist expectations, but still lies below SNB forecasts




Nick Rees, FX Market Analyst


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