Swiss inflation fell to its lowest level in more than three years, government data showed Thursday, prompting analysts to say further interest rate cuts by the Swiss National Bank were all but certain .
Swiss consumer prices increased by 0.8% in September compared to the same month of the previous year, according to data from the Federal Statistical Office, the smallest increase since July 2021.
Month-on-month, prices fell 0.3%, due to lower prices for gasoline, housing and holidays, the OFS said.
In response to low inflation, the SNB last week cut interest rates to 1.0%, its third reduction this year, and indicated that further reductions were on the way.
The new central bank president, Martin Schlegel, has prioritized price stability, i.e. keeping inflation within a range of 0-2%, and said the risks of inflation were now on a more downward trend.
In his first public appearance since taking office, Schlegel also said on Tuesday that the SNB was not ruling out taking interest rates into negative territory.
The SNB declined to comment on the latest inflation figures on Thursday.
Markets have given an 82% probability for a 25 basis point cut by the SNB at its next meeting in December, and an 18% probability for a 50 basis point cut.
Karsten Junius, chief economist at J.Safra Sarasin, said inflation dynamics in Switzerland “remain alarming” with import prices falling while domestic inflation is mainly driven by rising rents.
“Today’s figures show that interest rate cuts by the SNB remain necessary,” said Junius, who expects a 25 basis point cut in December and further reductions afterwards.
“A further cut in March is now almost certain, and the risk is that the SNB will have to do more and cut rates in June next year as well,” Junius said.
GianLuigi Mandruzzato, an economist at EFG bank, said low inflation increased the likelihood that the SNB would cut interest rates by 50 basis points in December.
He still believes the SNB will cut rates by 25 basis points, although a 50 basis point cut cannot be ruled out.
“However, the chances of the SNB’s key rate reaching a low of 0.50% in the first half of 2025 are clearly increasing,” Mandruzzato said.
