Swiss inflation fell again in December, data showed Tuesday, fueling expectations of further interest rate cuts by the Swiss National Bank this year, which markets now view as all but certain.
Swiss prices rose 0.6% in December from a year earlier, according to figures from the Federal Statistical Office, down from 0.7% in November.
The figure is in line with the consensus forecast of analysts polled by Reuters and represents the fourth consecutive month where annual inflation has been below 1%.
Following this data, market expectations for a 25 basis point cut by the SNB in March, from the current level of 0.5%, increased to 98.4%, from 91% previously.
“A further interest rate cut by the SNB in March is now virtually certain,” said GianLuigi Mandruzzato, economist at EFG Bank.
“The question is to what extent – will the SNB opt for a 50 basis point cut like in December or will it stick to 25 basis points to avoid the risk of inflation too weak for too long?
Capital Economics’ Adrian Prettejohn also expects another rate cut by the SNB in March as disinflationary pressures build, and does not rule out further cuts.
-Month-on-month, Swiss prices fell 0.1%, in line with forecasts, as vegetables and international holidays became slightly cheaper.
As a result, Swiss inflation in 2024 averaged 1.1%, well below the SNB’s target range of 0% to 2%.
The SNB declined to comment on the latest inflation information.
While the December reading is unlikely to change the SNB’s calculations per se, another weak reading points to further rate cuts by the SNB in 2025 after four cuts in 2024, said Gero Jung, an economist at head at Mirabaud, a Swiss bank.
“The SNB is concerned about significant disinflation risks, which bring the overall inflation rate closer to zero, but also about the weakness of the eurozone economy, which will affect Switzerland,” said Jung, who expects the SNB to cut rates by 25 basis points in March and June, in order to bring its key rate to 0%.
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