The Consumer Price Index for Switzerland stood at 105.5 for October 2022. The inflation rate year over year to date in 2022, is 2.9%. Inflation from September 2022 to October 2022 was zero. Compare this to the average inflation rate currently in the 27 EU countries which lies at 10.6% and the question arises, what is going on in Switzerland?
In this post we take a look at the subject of inflation in Switzerland. What inflation is measured on in Switzerland – and why is it so low compared to other EU and global countries – what examples can we find from daily life? Sit back, relax and enjoy the ride!
In Switzerland, the National Consumer Price Index (CPI) measures the rate of inflation based on a “basket” of goods for Swiss private households. The most important categories in the CPI Index in Switzerland are:
- Housing & energy – 27 percent of the total weight
- Healthcare – 18 percent
- Transport – 10 percent
- Food and non-alcoholic beverages – 12 percent
- Restaurants and hotels – 7 percent
- Recreation & culture – 7 percent
- Miscellaneous goods & services – 6 percent
- Household goods & services – 4 percent
- Clothing and footwear – 3 percent
- Communication, alcoholic beverages & tobacco and education – the remaining 6 percent of the total weight
In total, the basket of commodities containing about 1’050 goods and services. These are weighted according to their share of the household budget.
In the euro area, the Harmonised Index of Consumer Prices (HICP) is used to measure consumer price inflation. That means the change over time in the prices of consumer goods and services purchased by euro area households. In October 2022, the average inflation shown on the EU dashboard stood at 10.6% with the lowest inflation recorded being in France at 7.1% and the highest in Estonia at 22.5%!
The HICP index covers similar items in the EU as the CPI in Switzerland including food & beverages, alcohol, clothing, shoes, housing, electricity and gas, transport, education, miscellaneous.
Why is inflation so low in Switzerland compared to other countries?
One of the main reasons for low inflation in Switzerland is the strong Swiss franc: while one Swiss franc was worth around €0.60 in 2008, by summer 2022, it cost €1.00. This makes goods imported into Switzerland significantly cheaper.
But currency is not the only reason for the low rate of inflation. Here are some major factors:
- Low demand for fossil fuels and regulated electricity prices. In 2021, 61.5 % of Switzerland’s electricity was generated as hydro-electricity and almost 29 percent as nuclear power. Switzerland still has a monopoly market for electricity, and providers must set their prices according to the costs of the more efficient electricity generation.
- Highest share of regulated prices in Europe. As well as electricity, the prices of other goods and services are also regulated in Switzerland. Almost one in three products used to calculate inflation is subject to price regulation. No other country in Europe has this.
- A key contributor to global inflation are agricultural products. However Switzerland imposes high import duties on agricultural goods so these do not affect the rate of inflation due to resulting low volume. The average tariffs on goods imported into Switzerland is just under 43 percent. In the EU, it is only 12.6 percent.
- High labour productivity – Swiss products are in demand globally despite high prices and strong Swiss franc. According to the OECD, Swiss labour productivity is among the highest of the OECD. This helps reduce inflation.
- Methodical differences in calculation of rate of inflation – the composition of the basket of goods selected for inflation is slightly different in Switzerland than it is in EU member states. One significant difference can be found in transportation costs, which are strongly affected by rising energy prices but given a lower weight in Switzerland’s basket of goods.
What is going up in price in Switzerland? What is staying the same?
- Switzerland is a land of renters and high real estate prices and a lack of sufficient assets and income are the main barriers. According to recent reports, almost half of renters is Switzerland could face significant increases in rent, in the new year. Because rents are legally closely linked to interest rates they may rise as much as 15%.
- Other reports point to a housing price crash on the horizon, driven by rising interest rates introduced to combat property bubbles mainly in Zurich and Geneva and from a dependance on low interest rates in common with many other countries.
- So while the housing market appears somewhat unstable at the current time, also influenced by a predicted lack of assets to rent going forward, some costs in Switzerland are getting cheaper relatively speaking. One of these is the annual motorway sticker for cars. Switzerland uses this system compared to other countries that operate tolls on a per-use basis.
- Valid from 1 December 2022 until 31 January 2024, stickers must be displayed on vehicles by anyone using Switzerland’s motorway network.
- The motorway stickers have cost the same CHF40 for the last 28 years! Introduced after a referendum in 1985, the sticker originally cost CHF30 before the price was raised to CHF 40 in 1995. Taking Inflation into consideration, the sticker costs around 15% less in real terms than it did in 1995. This is surprising given the green lobby and the excellent Swiss public transport system.
Switzerland is an expensive country to live in, there is no getting around that. But when looking at inflation rates in the EU and beyond, the low levels recorded in Switzerland to date, seem almost unreal. While the strong Swiss franc plays a major part in keeping inflation low, there are other reasons for this phenomenon. But Switzerland could be at a crossroads in terms of housing availability and rental accommodaton pricing and 2023 could see significant price rises in renting of apartments and houses. This will almost certainly affect the Swiss CPI “basket of goods” and with it, the rate of inflation. Keep those seat belts fastened – it could be a rocky ride ahead.
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