Swiss inflation surges, rate cut expected

Swiss annual inflation accelerated more than anticipated in April, rising to 1.4 per cent from 1 per cent in March, surpassing the 1.1 per cent forecast by economists, according to Thursday’s data from the Federal Statistics Office cited by Reuters.

This led to a strengthening of the Swiss franc against the euro and the dollar. On a monthly basis, prices rose by 0.3 per cent, higher than the 0.1 per cent forecast.

Despite the unexpected surge, economists still anticipate further interest rate cuts by the Swiss National Bank (SNB). The inflation rate has remained within the SNB’s 0-2 per cent target range for 11 consecutive months, and markets are pricing in a 60 per cent probability of a rate cut to 1.25 per cent at the next meeting on June 20.

Economists believe that conditions are in place for the SNB to cut the policy rate again in 2024, possibly as early as the next meeting in June. Despite the stronger-than-expected inflation in April, it does not indicate entrenched inflation, such as through higher wages.

The current policy rate of 1.5 per cent is considered restrictive, and economists believe the SNB is likely to shift monetary policy to a more ‘neutral’ territory in 2024. A rate cut in June to 1.25 per cent is likely, especially as the European Central Bank is expected to start its rate-cutting cycle in June.