Switzerland: The Land Inflation Left Behind

  • Swiss inflation, at 2.2%, is only a fraction of the rates peers face
  • Some prices, like health care, are falling
  • Politicians legislated to fight high prices
  • The Swiss energy mix, wage moderation and the strong franc also contribute

BERN, March 11 (Reuters) – While the rest of Europe grapples with soaring prices, in Switzerland inflation is so subdued that some key costs are actually falling.

The price of health care – a large part of Swiss household budgets – fell 0.5% year on year in February, when headline inflation hit 2.2%. It was the highest rate of inflation since 2008, but still only a fraction of the levels faced by other industrialized countries.

A combination of factors explains the modest price pressures in Switzerland: consumers are demanding better deals, an energy mix that leaves the country less exposed than others to soaring oil and gas prices, wage moderation and a some protection against import price inflation due to the strong franc.

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Admittedly, part of the reason for Switzerland’s low inflation is that the cost of living here is already so high.

“One of the things about Switzerland is that we tend to have high prices in pretty much everything when you compare it to our European neighbors,” said Nannette Hechler-Fayd’herbe, global head of economy and health. research at Credit Suisse.

Savvy Swiss consumers have found workarounds.

An hour’s drive from Zurich, just across the border from Germany, a cottage industry of “delivery address” companies has sprung up, charging Swiss customers a small fee to keep the goods they they order at advantageous German prices and which they recover later.

“People come here because they can buy cheaply,” said entrepreneur Mandy Klein, a German who started her home delivery address business in 2009 and now runs two depots in the scenic German border town of Konstanz, by the lake.

The dynamism of the delivery trade in Constance shows the desire of Swiss households to reduce their cost of living as much as possible. Despite this, Eurostat figures show that the price level of household consumption expenditure was still 60% higher in Switzerland in 2020 than the eurozone average.

The result is that consumer groups, tired of Switzerland being a “high-price island”, have pushed for political action that has resulted in two legislative changes since the start of this year to give households a better deal.

The first strengthened the Swiss cartel law to prevent companies from raising their prices for the Swiss market.

The second measure banned geo-blocking, used by retailers to prevent online shoppers from buying cheaper products or services from foreign sites, for example by diverting them to Swiss websites.

Prisca Birrer-Heimo, a centre-left Social Democrat lawmaker who co-led a “fair price initiative” demanding reform, has already seen an impact.

“There’s still potential, but we’ve noticed that the huge price differences aren’t as big as they used to be,” she told Reuters.

MONEY TURNER

The specific characteristics of the Swiss markets and the weight of certain key items in the consumer price index (CPI) also contribute to explaining why inflation is so low in Switzerland.

Health care, for example, which is provided by private companies, accounts for 17% of the CPI index, compared to 7% in the United States and 5% in Germany, according to OECD data. The government pushed health insurance companies to reduce premiums.

“This has been an area that, instead of creating inflation and price increases, has instead seen the opposite through political pressure,” Hechler-Fayd’herbe told Credit Suisse.

Thanks to Switzerland’s lakes, rivers and mountainous geology, hydroelectricity accounts for around 57% of the country’s energy production, according to the Federal Office of Energy, leaving the Swiss much less exposed than others. to soaring oil and gas prices.

The resulting efficiency gains mean that energy represents only 5% of the Swiss CPI basket, according to OECD data, compared to 7% in the United States and 10% in Germany, where consumers are much more exposed to rising fossil fuel prices. Read more

“Our best estimate is that (average) inflation in 2022 in Switzerland is 1.8%, although the recent surge in oil prices increases the risk of a somewhat higher rate,” Hechler-Fayd said. grass of Credit Suisse. “For 2023, we expect inflation to average 1.0 percent.”

With salaries already higher than in almost every other European country, there is less pressure for raises. Telecommunications operator Swisscom (SCMN.S) is only raising wages by 0.9% this year.

The strong franc also helps. Considered a safe haven, the franc rose briefly above parity with the euro this month and hit a seven-year high.

The purchasing power of the currency offers Switzerland some protection against rising import costs and contributes to domestic price stability, giving exporters the opportunity to gain an advantage over foreign rivals facing inflation. higher.

Jean-Philippe Kohl, deputy director and head of economic policy at electrical and mechanical engineering industrial group Swissmem, said half of the sector’s exports were destined for the euro zone, where inflation is around 6%.

“Sooner or later, a Swiss company that makes a product here and sells it in the eurozone will be able to sell it at a higher price…so you profit from that,” he said.

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Reporting by Paul Carrel; Additional reporting by Arnd Wiegmann; Editing by Susan Fenton

Our standards: The Thomson Reuters Trust Principles.

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