On a monthly basis, Swiss transport prices decreased by roughly 0.75% from March to April. This sudden decline raises fears about the endurance of inflation in the nation. It’s true that transport costs have fallen dramatically. This decline is directly linked to a decrease in oil prices primarily due to rising production from OPEC+ and recent tariff announcements from the US. Inflation is a major concern for Switzerland’s central bank, the Swiss National Bank (SNB). In reply, it can lower its base interest rate by 25 basis points to 0% this June.
The most recent Swiss inflation figures, published in early April, showed headline inflation at 0% y-o-y. The surprise plunge was compounded by a sudden moderation in the core inflation rate. This is yet another sign that the recent jump in inflation will prove to be transitory. The strong performance of the Swiss franc is causing concern at the SNB. This strength has contributed to small price upticks across the board.
Michael Pfister, an FX analyst at Commerzbank, elaborated on these trends, stating, “The slowdown in inflation should not come as too much of a surprise: in April, the oil price fell sharply thanks to OPEC+ production increases and the US tariff announcements, causing Swiss transport prices, which are heavily dependent on the oil price, to collapse. Seasonally adjusted, they fell by around 0.75% month-on-month. It’s likely that the strong Swiss franc had a big impact. Consequently, all but a few other components saw relatively small price increases.”
That linkage between oil prices and transport costs is central to understanding the more important bigger-picture implications for Switzerland’s economy. Global oil prices are facing downward pressure from recent OPEC+ decisions and other geopolitical factors. This means that Swiss citizens and companies would face greater volatility in their transport costs.
Beyond these advancements, Pfister shed light on the SNB’s outlook for upcoming months. The SNB must be praying for the trend to reverse over the next few months. Instead, all signs now point to a June 25 basis point cut to 0% to follow that. Hopefully we can see some indication of what will happen beyond June,” he added.
The SNB is under threat of going negative on interest rates. It has a long history of using this unconventional monetary policy tool as an experiment. In fact, analysts expect additional rate cuts are just around the corner. The central bank’s room to maneuver is severely limited — not least due to the presence of a strong currency.
“The fact that the Swiss franc came under pressure yesterday after the figures were released is probably partly due to the market now seeing things differently. However, the correction of the initial weakness also shows why the potential for the franc to weaken is limited. After all, even if negative interest rates are repeated, it should be clear to every market participant that the SNB’s room for manoeuvre is limited.” – Michael Pfister
With inflationary pressures easing, the SNB must now decide whether to change course on its monetary policy tightening strategy. Market participants and economists will be paying especially close attention to June’s expected interest rate pause. Their intense focus is to learn just how the monetary authority plans to steer the country’s economy through such testing, difficult times.