The status of Swiss inflation is controversial.

If your wallet gets fuller and your shopping basket empties, there is inflation. Switzerland has also recently experienced a wave of inflation. Since its peak of 3.5 percent, inflation has fallen significantly again – and with it the key interest rate of the Swiss National Bank (SNB). There is already speculation about the renewed introduction of negative interest rates. In order to better classify this debate, it is advisable to take a differentiated look at the underlying price data.

You find what you want to find

In November, the national consumer price index (LIK) showed inflation of 0.7 percent. Inflation is therefore comfortably within the SNB target range of between 0 and 2 percent. But that doesn’t mean that life has become exactly 0.7 percent more expensive for the population. Depending on what is put into the relevant shopping basket when calculating inflation and how the individual goods and services are weighted, the result will be different inflation.

Because you can add and subtract many things when it comes to inflation, you can easily argue with the price data that the Federal Statistical Office (BfS) compiles monthly. Those who want to prove increasing price pressure will find what they are looking for in the BfS’s sea of ​​data, as will those who are looking for arguments for decreasing price pressure. Currently, in the run-up to the SNB’s interest rate decision on Thursday, economists and analysts are once again offering up all sorts of different numbers.

For example, if you want to explain that inflation is still quite high and that there is little reason for the SNB to cut interest rates sharply, it is best to point to the price development of domestic goods. Because inflation has barely abated here. The price of domestic goods has been oscillating around 2 percent for over two years. It is therefore clearly in the upper half of the monetary policy target range; Accordingly, one can ask why the SNB has lowered the key interest rate since March.

The answer comes from the inflation of imported goods. Because this has decreased significantly since the summer of 2022 and has even been negative for a year. So the imported products have become cheaper. This is because the franc has increased in external value and you can buy more things per franc abroad. People whose consumption consists disproportionately of imported goods therefore feel less of inflation than those whose shopping basket consists primarily of domestic products.

Without food and energy

But what do you do if neither domestic nor imported inflation supports your own argument? Then the only thing that helps is resorting to so-called core inflation. This is useful if you want to show that prices are developing fairly consistently. As a rule, core inflation does not record any major fluctuations. The reason: goods with particularly volatile prices are excluded.

Firstly, foodstuffs whose prices are influenced by weather conditions, bad harvests and other natural events that are difficult to predict are separated out. Secondly, energy goods whose prices react to production decisions by oil-exporting countries or geopolitical tensions are not taken into account. If you ignore the associated price fluctuations, you often gain a better insight into the long-term trend of prices.

However, this does not mean that core inflation is necessarily lower than overall inflation. This was the case when energy prices rose sharply from mid-2021. Because energy prices have recently eased again and fresh products have even become cheaper, core inflation is currently 0.9 percent, above overall inflation. Anyone who has previously pushed for interest rate cuts with reference to low core inflation needs new arguments.

Hide apartment rents

You don’t have to search for long. The only thing that needs to be done is to focus on a new variant of inflation. Inflation, excluding rents, is currently very popular among monetary policy “doves” who are pushing for a loose money supply through the SNB. Inflation in Switzerland is now only 0.1 percent, which makes further interest rate cuts seem necessary.

But why should you ignore rental prices – the largest expense for most households? The reason: The recent increase in rents was primarily due to the increase in the reference mortgage interest rate. However, this interest rate is unlikely to rise any further in the near future, as the SNB has lowered the key interest rate. When comparing with the previous year’s figures, rental inflation is likely to soon fall out of the statistics. So look through it and ignore it.

Falling inflation does not mean falling prices

From a purely mathematical point of view, all of this is correct. But what is often ignored in the debate about the decline in inflation is that the fact that inflation is falling does not mean that consumers are better off again. Falling inflation does not mean falling prices, but rather just a slowdown in price increases. Furthermore, compared to the end of 2020, apartment rents are still 9 percent more expensive, and the general price level in Switzerland has increased by 7 percent.

Anyone who saw their wages increase by 7 percent during this period is in the same good position as it was at the end of 2020. Everyone else – and this is probably the majority in Switzerland – is worse off. They have to spend a higher proportion of their wages every month to cover their living expenses. Those who urgently warn against deflation usually ignore the fact that slightly falling prices could help compensate for part of the recent loss of purchasing power.

This is particularly true for the Swiss, whose spending is heavily focused on products that have recently become significantly more expensive. You currently have to pay between 40 and almost 60 percent more for energy goods such as gas, electricity, district heating and heating oil than at the end of 2020. The fact that inflation for energy and fuel is now only 0.2 percent does little to change the persistently higher cost level .

A question of correct statistics

However, some goods have also become cheaper over the past four years. In addition to electronic products such as PCs or TVs, this also includes selected foods such as citrus fruits, potatoes and onions. But the same applies here: Food prices fell by 0.9 percent in November. But today the price level for food is 6 percent higher than at the end of 2020; the higher level would remain even with zero inflation.

Inflation leaves scars. A country with constant inflation of 2 percent – the target value of the central banks in the USA and the euro zone – will see its real financial assets halved in 35 years. Fortunately, the SNB has a stricter definition of price stability. But even in Switzerland, with its rather moderate inflation, assessing price developments is a minefield. The result depends not least on which statistics you use and which factors you consciously ignore.