Recent data from the Swiss government reveals that inflation in Switzerland has dropped to its lowest level in over three years, suggesting potential further rate cuts by the Swiss National Bank (SNB) this year and in 2025.
The Swiss Federal Statistical Office reported that the Consumer Price Index (CPI) increased by 0.6% year-on-year in October, falling short of the anticipated 0.8%. This represents the smallest price rise since July 2021, driven by decreases in food, clothing, and household goods prices. The government also noted a 0.1% month-on-month decrease in prices.
Following the release of these data, the Swiss franc weakened to a five-week low, with market expectations pointing towards a reduction in borrowing costs to prevent inflation from slipping below the target range of 0-2%. Experts now see a 72% chance that the SNB will lower rates from 1% to 0.75% at its next meeting on December 12, with a further cut to 0.5% in March holding a 68% probability.
Karsten Junius, an economist at J.Safra Sarasin, noted that the decline in inflation makes the SNB uneasy, anticipating a 25 basis point cut in December. However, he wouldn't be surprised by a 50 basis point reduction. Junius also predicts that the SNB might opt for smaller cuts spread out over the coming months and intensify currency market interventions in early 2025.
GianLuigi Mandruzzato, an economist at EFG Bank, highlighted that the October inflation rate is well below the SNB's fourth quarter forecast of 1%. He suggested the new data increases the likelihood of more significant 0.5% cuts, considering the rising risk of temporary deflation in 2025.
