Switzerland October-24 CPI Inflation Report

Downside pressure on Inflation intensifies.

Key takeaways:

• In October, the Swiss Consumer Price Index (CPI) rose by 0.6% year-on-year (YoY), lower than September's 0.8% YoY figure and the consensus forecast of an increase of 0.8% YoY. On a month-on-month (MoM) basis, the headline CPI decreased by  0.1%, compared with a 0.3%  MoM decline in September.

• The Core CPI increased by 0.8% YoY in October, lower than the 1.0% YoY observed in September. However, it showed a month-on-month increase of 0.1%, higher than the 0.2% MoM decline recorded in September.

• The services sector was the primary driver of rising prices, which experienced a 1.9% YoY increase in October. In contrast, the goods sector declined for the sixth time in 2024, with a decrease of 1.3% YoY versus a decline of 0.9% YoY in September.

• Housing rentals have trended upward since November 2023. In October, the increase was 4.0 % YoY (the highest since November 1993), higher than the 3.4% YoY recorded in the previous observation. As noted previously, this further increase in housing rental inflation is consistent with the Catch-22 effect where monetary policy hikes lead to sectoral inflationary pressures.

• 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 3.1% YoY (versus a 2.7% YoY decline in September) and domestic prices rising at 1.8% YoY (lower than the 2% YoY recorded in September).

• From the SNB's perspective, the current release, coupled with the September one suggests a worsening of the disinflationary outlook and might lead to further revision of the conditional inflation path outlined in its latest monetary policy assessment. There is going to be one further inflation release before the next monetary policy decision in December. Another aspect to note is the broadening of deflationary pressures among several components of the CPI basket. Indeed, excluding housing rentals, in October the CPI inflation declined by 0.1% year-on-year lower than the 0.1% YoY increase reported in September, and the 0.4% recorded in August.

  Further interest rate cuts and foreign exchange interventions may be necessary to counteract deflationary pressures from import prices, as well as emerging signs of deflation (on a month-to-month basis) in certain domestic categories.

Related Posts

Switzerland September 24-CPI Inflation Report (previous release)

The SNB’s Forward-Looking Compromise (analysis of SNB’s September policy decision)

Switzerland August 24-CPI Inflation Report (previous release)

The SNB’s Challenging Rebalancing Act (analysis of SNB policy and Catch-22 effect for the SNB)

The SNB sets the time (analysis of SNB policy and Catch-22 effect for the SNB)

Switzerland July 24-CPI Inflation Report (previous release)

Review of the Inflation Report

Consumer prices rose by 0.6% year-on-year (YoY) in October 2024, below September’s increase of 0.8% YoY. On a month-on-month (MoM) basis, consumer prices declined by 0.1% YoY, following a 0.3% decline in September.

Core CPI, which excludes fresh and seasonal products as well as energy and fuels, increased by 0.8% year-on-year (YoY) in October (Chart 1), lower than the 1% YoY observed in September. On a month-on-month basis, Core CPI increased by 0.1%, compared to a 0.2% decline in September.

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 October, services saw a 1.9% YoY increase, lower than the 2.1% recorded in September. Meanwhile, the goods sector experienced a decline of 1.3% YoY, following a 0.9% YoY decline in September.

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 August is the month in which the new three-month data point is reported. In October the housing rental component had the same value as in August and September (a 4% increase year-on-year compared with the 3.4% YoY reported in July, June, and May). As noted previously, the upward trend 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 October the CPI inflation declined by 0.1% year-on-year lower than the 0.1% YoY increase reported in September, and the 0.4% recorded in August.

Another important classification from Switzerland's perspective is the distinction between domestic and imported inflation (see Chart 4). In October, domestic inflation rose by 1.8% year-on-year, lower than the 2% YoY recorded in September. On a monthly basis, domestic inflation declined by 0.1% MoM, higher than the 0.2% MoM decline reported in September 2024. In contrast, imported inflation decreased by 3.1% year-over-year, which is a lower decrease than the -2.7% recorded in September. On a monthly basis, imported inflation fell by 0.1%, compared to the -0.5% seen in September.

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). The HICP has increased by 0.7% on a year-on-year basis, below the 0.9% recorded in September.

Summary

The report presents a more pronounced disinflationary outlook than anticipated by consensus and the latest monetary policy assessment by the SNB. In addition to the ongoing deflationary trend in goods and the effects of imported inflation, it's important to highlight the decline in service and domestic inflation on a month-to-month basis (now for two months in a row).

An additional indicator of the emerging deflationary trend is the decrease in CPI inflation excluding housing rentals. In October, this measure dropped by 0.1% year-on-year, contrasting with the 0.1% increase seen in September and the 0.4% rise in August.

There will be one more inflation report before the next monetary policy decision by the Swiss National Bank in December. In addition to inflation trends, other events may introduce uncertainties to the outlook: the results of the U.S. election could prompt financial market adjustments, alongside developments in the Euro area. As discussed in “The SNB’s Forward-Looking Compromise” the overall more pronounced disinflationary picture would require a combination of further rate cuts and increased foreign exchange intervention given the strength of the Swiss Franc.

Table 1: CPI by components (% YoY)

Source: Swiss Federal Statistical Office (FSO).

Table 2: CPI by components (% MoM)

Source: Swiss Federal Statistical Office (FSO).