Swiss Franc Weakens Following In-Line Inflation Data, SNB Intervention Possible
Teh Swiss franc experienced a decline in value against most currencies following the release of August inflation data. Consumer Price Index (CPI) figures showed an annual increase of 0.2 percent and a monthly decrease of 0.1 percent,aligning with market expectations. A meaningful factor in this result was an 8.3 percent year-on-year decrease in energy prices.
These inflation figures are consistent with the National Bank of SwitzerlandS (SNB) current forecast of 0.2 percent price growth for the year. The SNB anticipates a gradual acceleration, projecting inflation to reach 0.5 percent in 2026 and 0.7 percent in 2027.
The strength of the Swiss franc continues to exert downward pressure on inflation, as imported goods prices fell by 1.3 percent year-on-year in August. Domestic prices demonstrated a moderate increase of 0.6 percent annually. Though, this strong exchange rate also presents a challenge to the country’s economic recovery.
Adding to economic headwinds, tariffs imposed by the United States on Swiss exports pose a risk to Switzerland’s economic stability. The rental market, which adjusts prices quarterly, is showing signs of stabilization following previous increases linked to rising interest rates.
While market consensus doesn’t anticipate an interest rate cut at the upcoming September SNB meeting, an unexpected decision by the central bank remains a possibility in response to evolving economic threats. Limited inflationary pressure and uncertainty surrounding U.S. customs duties may temper the SNB’s inclination to further ease monetary policy.
Despite recent weakness, the Swiss franc remains a strong currency, hindering a return to pre-pandemic inflation levels. The combination of a strong franc and rising commercial costs could force the SNB to intervene in the currency market before the end of the year, as the probability of inflation reaching 0.5 percent in the coming months remains.
