The high-street impact of the SNB decision to abandon its 1.20-per-euro ceiling last month is spreading across Switzerland, cheapening the cost of imported goods from cars to groceries.
"If the franc doesn’t budge from its current level of about 1.05 per euro, we should clearly have negative inflation,” said David Marmet, an economist at Zuercher Kantonalbank in Zurich. “Some stores have already lowered prices, and some have yet to do so. That’ll have an effect on price growth.”
Consumer prices probably extended their slide in January, dropping an annual 0.6 per cent, according to the median of 15 estimates in a Bloomberg survey before data due this week. That would be the biggest drop since April 2013.
Switzerland has already experienced annual consumer-price declines for the last three years. The country doesn’t produce cars and, in addition to them, imports many everyday items such as food, clothing and toiletries. The Eurozone is Switzerland’s biggest trading partner.
The franc has appreciated some 15 per cent against the euro since the SNB dropped the minimum exchange rate last month.
That means that shopping abroad has become more tempting, making shop owners adopt radical measures to retain customers.
Swiss supermarkets Migros and Coop have reduced prices on imported items from the Eurozone some 10 per cent.
Having lifted its cap on the franc, the SNB, whose mandate is a positive inflation rate below 2 per cent, has yet to issue new forecasts. Its previous view, issued in December, when the minimum exchange rate was still in place, was for a 0.1-per-cent decline in 2015. SNB vice-president Jean-Pierre Danthine said in an interview with the newspaper Tages-Anzeiger late last month that the price declines would be “temporary”.
Should the slump in price growth prove enduring, consumers’ outlook for prices could be hit and they could cut spending, threatening the Swiss economy.
So far, household spending and domestic demand have underpinned growth. That helped the Swiss economy outperform the Eurozone every quarter since 2012, even as manufacturing and tourism battled an unfavourable exchange rate.
Bloomberg News, edited by ESM
