ZURICH. Nine days before its September policy assessment, the Swiss National Bank has published an answer to one of the longest running questions in Swiss economics: why does inflation at home average almost two percentage points below the euro area’s? The study, released on Monday as an SNB economic note, finds that two thirds of the gap comes from goods, above all food and energy, and that the cause is smaller price increases rather than different shopping baskets.
The numbers inside the note are stark. Since 2010, Swiss goods inflation has run 2.2 percentage points lower than the euro area’s each year on average. Over fifteen years, goods prices in the euro area have risen 44 per cent while Swiss goods prices have remained stable. Services have risen on both sides of the border, but the gap persists there too: 45 per cent in the euro area against 13 per cent in Switzerland.
The mechanism, economists inside and outside the bank agree, is the franc. A currency that has strengthened over decades lowers the price of everything Switzerland imports, and Switzerland imports almost everything it eats, burns and wears. Regulated electricity prices and a smaller energy share in the consumer basket add to the effect. The strong franc, in other words, is not just a burden for exporters. It is the country’s disinflation machine.
The study lands at a delicate moment. August inflation jumped to 0.8 per cent, the fastest in almost two years, as a weaker franc fed import prices and petroleum products cost about a quarter more than a year ago. That is still comfortably inside the SNB’s 0 to 2 per cent target band, and still less than half the euro area’s rate, but it is the wrong direction at the wrong time for a bank that wants to hold its policy rate at zero.
Growth, at least, is not the problem. Second quarter GDP expanded 1.5 per cent, the strongest reading since 2021, carried by a 10.5 per cent surge in the chemical and pharmaceutical industry and a broad recovery in domestic demand. The economy does not need rescuing. It needs, in the bank’s view, guarding against a franc that appreciates too fast when the world gets nervous.
Markets expect no move on 24 September. The policy rate has stood at zero since June, and people familiar with thinking inside the bank say current forecasts assume no change until well into 2027, with a first rise most likely in early 2028. The SNB’s increased willingness to intervene in foreign exchange markets, restated in June, is expected to carry the weight a rate cut cannot.
The note’s quiet conclusion supports that patience. If the inflation gap is structural rather than cyclical, imported disinflation keeps doing part of the bank’s work for it, and the risk of Swiss inflation persistently overshooting the target is lower than the August print suggests. The same structure, of course, is what squeezes exporters, which is why the franc’s strength reads as a warning as much as a success.
Not everyone is comforted. Savers’ associations point out that fifteen years of near zero rates have transferred wealth from depositors to borrowers, and exporter lobbies note that structural disinflation at home has not spared them the pain of an expensive currency abroad. Both arguments will be made to the Governing Board this week, and both will be noted, and neither is expected to change the decision.
The announcement comes on 24 September, followed by the quarterly monetary policy report and, four weeks later, the summary of the governing board’s discussion. The gap is structural, the franc is the mechanism, and zero rates are the consequence. Monday’s study did not announce a policy. It explained why the policy is unlikely to move.