Over three percent annual control. That is a lot – too much for Switzerland. The National Bank tolerates a maximum of 2 percent inflation in the long term. That’s why she already raised interest rates in June. This makes credit more expensive for investments and consumption, curbs the economy and thus price increases.
The National Bank will do it again to curb inflation with this tighter monetary policy. However, analyzes show that Switzerland buys around half of the price increases abroad. Above all by introducing fossil fuels: oil, diesel, petrol and kerosene for heating, driving and flying, for example. Such fuels are the number one driver of global inflation. Behind this is mainly Russia’s war against Ukraine.
The strength of the franc helps
Switzerland has one advantage – in the fight against this imported inflation, the strong Swiss franc helps the National Bank. The mechanism is simple: the more the franc appreciates against the euro, the cheaper it is – relatively speaking – to shop with francs in the euro zone. This reduces inflation for everyone who calculates in Swiss francs. And that pleases consumers, too.
Many other European countries, such as Germany, do not have this practical buffer. Unlike Switzerland, Germany cannot conduct its own monetary policy. The Germans are in the same boat as all the other 18 member states of the eurozone. And the European Central Bank (ECB) has so far only hesitantly tackled inflation. It will raise interest rates slightly in July. However, that is unlikely to be of much use given the record high inflation of almost 9 percent in the euro area.
The SNB does not have enough strength to go it alone
But the Swiss have no reason to gloat. On the contrary: as long as prices rise sharply in the rest of the world, wage earners and pensioners will also suffer here, albeit to a lesser extent. The reason for this is that the National Bank cannot allow the Swiss franc to strengthen at will – otherwise it would damage the export economy. At some point there comes a point when the exporters say: That’s enough, it’s going to be very difficult for us to sell our products on the world market. Then the National Bank has to intervene and stabilize the exchange rate.
This means that the strong Swiss franc only has a limited effect as a means of counteracting imported inflation. Switzerland will only really be completely out of the inflationary danger zone when international prices no longer rise so sharply.
Business Editor for Radio SRF
Jan Baumann has been business editor at Radio SRF since 2013. Before that, he worked for around ten years as an editor for the newspaper “Finanz und Wirtschaft”, including as a US correspondent.