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Swiss inflation in May erodes case for further interest rate cut

Summary:
In March 2024, as Switzerland’s month-on-month inflation rate went to zero and the annual inflation rate dipped to 1%, the Swiss National Bank (SNB) cut its key interest rate from 1.75% to 1.5%. Some expected the bank to keep cutting. However, in both April and May 2024, monthly inflation returned, making further imminent rate cuts less likely. © Maticsandra | Dreamstime.comThis week, the Federal Statistical Office (FSO) published data showing consumer prices rising 0.3% during May 2024. At the end of May, consumer prices were 1.4% higher than at the end of May 2023, a rate within the range targeted by the SNB.  However, 0.3% monthly inflation annualised is 3.6%. In addition, prices rose at the same rate in April 2024. A key reason behind the recent surge in consumer prices is

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In March 2024, as Switzerland’s month-on-month inflation rate went to zero and the annual inflation rate dipped to 1%, the Swiss National Bank (SNB) cut its key interest rate from 1.75% to 1.5%. Some expected the bank to keep cutting. However, in both April and May 2024, monthly inflation returned, making further imminent rate cuts less likely.

Swiss inflation in May erodes case for further interest rate cut
© Maticsandra | Dreamstime.com

This week, the Federal Statistical Office (FSO) published data showing consumer prices rising 0.3% during May 2024. At the end of May, consumer prices were 1.4% higher than at the end of May 2023, a rate within the range targeted by the SNB. 

However, 0.3% monthly inflation annualised is 3.6%. In addition, prices rose at the same rate in April 2024.

A key reason behind the recent surge in consumer prices is the effect of a weaker Swiss Franc, which has pushed up the price of imported goods and services. At the end of 2023, the Franc bought nearly 1.08 Euros. Towards the end of May the rate had slumped to less than 1.01. Since then the Franc has bounced back somewhat to 1.03. An interest rate cut of 0.25% by the ECB on 6 June 2024 may have helped to boost the Franc relative to the Euro.

Prices up the most in May 2024 included food and drink (+0.9%), housing and energy (+0.6%) and clothing and footwear (+0.4%). The price of alcohol and tobacco products fell the most (-1.1%).

In March 2024, the SNB cut its policy rate from 1.75% to 1.5%, a move that took many in the market by surprise.

More on this:
FSO inflation data (in French) – Take a 5 minute French test now

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