Switzerland January-25 CPI Inflation Report
Persistent disinflation reinforces the likely March rate cut by the SNB.
Key takeaways:
In January 2025, the Swiss Consumer Price Index (CPI) rose by 0.4% year-on-year (YoY), lower than December’s 0.6% YoY figure, and in line with the consensus forecast of 0.4% YoY. On a month-on-month (MoM) basis, the headline CPI decreased by 0.1%, the same monthly decline as in December 2024.
The Core CPI increased by 0.9% YoY in January, up from the 0.7% YoY observed in December. However, the Core CPI index declined by 0.1% MoM in January, compared with no change in December (0%).
The services sector was the primary driver of rising prices, experiencing a 1.8% YoY increase in January, higher than the 1.6% YoY recorded in December. In contrast, the goods sector declined by 1.8% YoY versus a decline of 0.9% YoY in December.
Housing rentals have trended upward since November 2023. Since this data is adjusted every three months, the January release is the same as the December and November ones, with an increase of 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 1.5% YoY in January (versus a 2.2% YoY decline in December) and domestic prices rising at 1.0% YoY (versus the 1.5% YoY recorded in December and 1.7% in November).
From the SNB's perspective, the current release, coupled with the December release, 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. A bit surprising was the divergence in service inflation from 1.6% YoY in December 2024 to 1.8% YoY in January 2025 versus domestic inflation down from 1.5% YoY in December 2024 to 1.0% in January 2025.
Excluding housing rentals, the CPI inflation entered deflationary territory declining by 0.3% YoY in January, compared to the no change in December (0%), and the 0.1% YoY increase recorded in November.
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Review of the Inflation Release
Consumer prices rose by 0.4% year-on-year (YoY) in January 2025, below December’s increase of 0.6% YoY and in line with the consensus forecast of 0.4% YoY. On a month-on-month (MoM) basis, consumer prices declined by 0.1%, following a 0.1% MoM decline in December.
Core CPI, which excludes fresh and seasonal products as well as energy and fuels, increased by 0.9% year-on-year (YoY) in January (Chart 1), up from the 0.7% YoY observed in December. On a month-on-month basis, Core CPI decreased by 0.1% MoM, compared to no change recorded in December.
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 January, services saw a 1.8% YoY increase, higher than the 1.6% recorded in December. Meanwhile, the goods sector experienced a decline of 1.8% YoY, down from the -0.9% YoY figures of December and November.
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 January the data is the same as in December and November at 3.4% YoY, down from the 4.0% YoY reported in October, September, and August. As noted previously, the stubbornness exhibited 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 January the CPI inflation entered deflationary territory and decreased by 0.3% year-on-year, lower than the no change (0% YoY) reported in December, and the 0.1% YoY increase from November.
Another important classification from Switzerland's perspective is the distinction between domestic and imported inflation (see Chart 4). In January, domestic inflation rose by 1.0% year-on-year, lower than the 1.5% YoY recorded in December. On a monthly basis, domestic inflation increased by 0.1% MoM, the same increase as in December. In contrast, imported inflation decreased by 1.5% year-on-year, which is a lower decline than the -2.2% recorded in December. On a monthly basis, imported inflation fell by 0.7%, down from the -0.5% seen in December.
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 January, the HICP increased by 0.2% on a year-on-year basis, lower than the 0.6% increase observed in December.
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 the decline in domestic inflation down from 1.5% YoY to 1.0% YoY.
An additional indicator of the almost deflationary context is the behavior of CPI inflation excluding housing rentals. In January, this measure declined by 0.3% year-on-year, contrasting with the no-change (0%) seen in December, and the 0.1% increase in November.
The next monetary policy decision by the Swiss National Bank is in March. It is widely expected that the SNB will cut the policy rate by 25bps. The current release reinforces this expectation.
Table 1: CPI by components (% YoY)
Source: Swiss Federal Statistical Office (FSO).
Table 2: CPI by components (% MoM)
Source: Swiss Federal Statistical Office (FSO).