Switzerland December-24 CPI Inflation Report
Persistent downside pressures on inflation in Switzerland
Key takeaways:
In December, the Swiss Consumer Price Index (CPI) rose by 0.6% year-on-year (YoY), lower than November's 0.7% YoY figure and in line with the consensus forecast of 0.6% YoY. On a month-on-month (MoM) basis, the headline CPI decreased by 0.1%, the same monthly decline recorded in November.
The Core CPI increased by 0.7% YoY in December, down from the 0.9% YoY observed in November and lower than the consensus forecast of 0.8% YoY. In December, the Core CPI index recorded a 0% change MoM, the same rate as in November.
The services sector was the primary driver of rising prices, experiencing a 1.6% increase in December, lower than the 1.8% YoY recorded in November. In contrast, the goods sector declined for the eighth time in 2024, with a decrease of 0.9% YoY, the same decline as in November.
Housing rentals have trended upward since November 2023. Since this data is adjusted every three months, the December release is the same as the November’s one with an increase by 3.4% YoY lower than the 4.0% recorded in the period going from August to October.
These results are consistent with a common dichotomy faced by Central Banks in (major) advanced economies: goods prices are in a deflationary territory while service price inflation is slowly adjusting.
A parallel dichotomy arises in Switzerland by examining import and domestic prices, with import prices declining by 2.2% YoY (versus a 2.3% YoY decline in November) and domestic prices rising at 1.5% YoY (lower than the 1.7% YoY recorded in November and the 1.8% recorded in October).
From the SNB's perspective, the current release, coupled with the latest releases, confirms the persistent disinflationary outlook that has led to the further downward revision of the conditional inflation path outlined in its latest monetary policy assessment. Another aspect to note is the broadening of deflationary pressures among several components of the CPI basket especially in the month-on-month readings. The only item in positive territory on a month-on-month basis was the Restaurant and Hotel component.
Excluding housing rentals, the CPI inflation did not change in December (0% YoY), ticking down from the 0.1% YoY increase reported in November after the 0.1% YoY decline recorded in October.
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Inflation Report
Consumer prices rose by 0.6% year-on-year (YoY) in December 2024, below November’s increase of 0.7% YoY and in line with consensus forecast of 0.6% YoY. On a month-on-month (MoM) basis, consumer prices declined by 0.1%, following a 0.1% MoM decline in November.
Core CPI, which excludes fresh and seasonal products as well as energy and fuels, increased by 0.7% year-on-year (YoY) in December (Chart 1), down from the 0.9% YoY observed in November. On a month-on-month basis, the Core CPI did not change in December, following the no change recorded in November.
Similarly to trends seen in other advanced countries, the services sector, rather than the goods sector, is the main driver of rising prices (Chart 2). In December, services saw a 1.6% YoY increase, lower than the 1.8% recorded in November. Meanwhile, the goods sector experienced a decline of 0.9% YoY, the same decline as in November after the 1.3% YoY decline of October.
Upon examining the more disaggregated data (refer to Tables 1 and 2), it is evident that, like other advanced economies, housing rentals are the primary driver of inflation (as shown in Chart 3). In Switzerland, this component of the Consumer Price Index (CPI) is adjusted every three months, and in December the data is the same as in November at 3.4% YoY, down from the 4.0% YoY reported in October, September, and August. As noted previously, the stubbornness in housing rental is consistent with the Catch-22 effect where monetary policy hikes lead to higher mortgage rates that tend to exacerbate domestic inflation. Excluding housing rentals, in December, the CPI inflation did not change, following the 0.1% YoY increase reported in November after October's 0.1% YoY decline.
Another important classification from Switzerland's perspective is the distinction between domestic and imported inflation (see Chart 4). In December, domestic inflation rose by 1.5% year-on-year, lower than the 1.7% YoY recorded in November. On a monthly basis, domestic inflation rose by 0.1%, higher than the 0.1% MoM decline recorded in November. In contrast, imported inflation decreased by 2.2% year-on-year, which is a lower decline than the -2.3% recorded in November. On a monthly basis, imported inflation fell by 0.5%, down from the -0.4% seen in November.
The Swiss Federal Statistical Office also makes available a measure of the Harmonized Price Index of Consumer Prices (The Harmonized Index of Consumer Prices (HICP) is an indicator that the member states of EU and EFTA calculate based on a harmonized method and that allows comparing inflation internationally). In December, the HICP increased by 0.4% on a year-on-year basis, lower than the 0.7% increase observed in November and the consensus forecast of 0.6%.
Summary
The report presents a similar disinflationary outlook as the previous releases. In addition to the ongoing deflationary trend in goods and the effects of imported inflation, it's important to highlight that domestic inflation on a month-to-month basis turned positive because of the Restaurant and Hotel component after three months of negative month-on-month readings.
An additional indicator of the almost deflationary context is the behavior of CPI inflation excluding housing rentals. In December, this measure was flat on a year-on-year basis, contrasting with the 0.1% increase seen in November after the 0.1% decline in October.
The next monetary policy decision by the Swiss National Bank is in March.
Table 1: CPI by components (% YoY)
Source: Swiss Federal Statistical Office (FSO).
Table 2: CPI by components (% MoM)
Source: Swiss Federal Statistical Office (FSO).