Inflation in Switzerland has remained constant at 1.4% in May compared to the same month last year, despite a significant increase in apartment rents of 3.4%. The decline in other prices helped balance out this increase, keeping inflation under control.
The Federal Statistical Office (BfS) collects rental prices once a quarter, which delayed the reflection of monthly changes in rental costs in inflation data. In May, rental prices were included for the first time since February, revealing the impact of the reference interest rate for tenancies raised in December. This resulted in 19% of new tenancies experiencing rent increases.
The latest inflation data present different interpretations for the Swiss National Bank’s upcoming monetary policy assessment. Depending on whether housing costs are included or excluded, inflation could be seen at either 1.4% or 0.9%. This may influence the decision for further interest rate cuts by the SNB.
The developments in the value of the Swiss franc and its impact on imports also play a role in the inflation rate. A weaker franc benefits domestic exporters but poses a risk of increased import costs leading to imported inflation. Despite this risk, however, imports have remained relatively affordable due to their lower cost compared to domestic goods, contributing to inflation remaining low due to domestic goods.
SNB President Thomas Jordan highlighted that the current interest rate is close to the equilibrium real interest rate in a recent speech, suggesting that it is unlikely to slow down the economy further at this time. With a robust Swiss economy and a stimulating effect from the weaker franc, there may be limited justification for further monetary policy easing at this time.
In summary, while rents have increased significantly and played a major role in shaping inflation rates, other factors such as import costs and exchange rates have also contributed to keeping inflation stable overall
