Switzerland raises the drawbridge

Zugbrücke über einen Fluss
Old-fashioned drawbridges disrupt traffic flow. (Image: D. Grachyov / unsplash)

Switzerland, like the rest of the world, is fighting against rising inflation. In doing so, it has a wild card in its hand and is eagerly using it.

Switzerland once again occupies a top spot in the world. While numerous countries are drowning in galloping inflation, Switzerland is an island of bliss.

Inflation in this country is a mere 2.8 percent, down 0.2 percent in December 2022, according to the latest data released Wednesday by the Federal Statistical Office (FSO).

Higher housing rents

In 2022, average annual inflation was at +2.8 percent. This increase was due in particular to higher prices for petroleum products, gas and automobiles, as well as higher residential rents, the statisticians documented.

In contrast, however, the prices for combined fixed and mobile network offers and medicines have fallen.

The prices of domestic products have increased overall by 1.6 percent, while those of imported goods have increased by 6.7 percent.

Shopping with strong money

And this is where the drawbridge comes into play. This is the Swiss franc. Thanks to the appreciation that the Swiss National Bank has recently allowed, the price of products that have become more expensive abroad is falling.

As a result, inflation in other countries remains over there, and Switzerland buys more cheaply beyond its borders thanks to the strong franc.

Dampening price momentum

On an annual basis, this means that for December 2022, inflation in Switzerland of 2.8 percent compared with December 2021. This is made up of inflation for domestic goods of 1.9 percent and for imported goods of 5.8 percent.

The latter figure would be even higher if the country did not have a strong franc to dampen it. After all, inflation rates – depending on where the imported goods come from – sometimes exceed 10 percent.

Trapped in community

According to the FSO, inflation in Germany and the Netherlands recently stood at 11.3 percent. In Italy, the price levels even increased by 12.6 percent.

Without their own currency, but with the common euro, these countries are trapped in a community of fate. There are no longer any country-specific adjustment mechanisms at hand.

And in Central and Eastern Europe, individual countries have risen by more than 20 percent. In Hungary the rate increased to 23.1 percent.

Not all gold

However, the disadvantage of the defense mechanism against foreign inflation is also reflected in Switzerland. Namely the mega-billion losses at the Swiss National Bank (SNB), as muula.ch also reported earlier.

While it tried to weaken the Swiss franc over the past years by printing money, buying assets abroad, the central bank is now strengthening the Swiss franc to keep the fight against inflation from abroad at bay.

But the assets purchased earlier, which are on the SNB’s books in euros and dollars, are losing a lot of value this way, producing losses into the billions.

Other side of the coin

The Swiss National Bank could also have avoided those losses by not allowing the Swiss franc to appreciate – as it has done in recent years.

But then the higher prices for goods and services abroad would have been reflected in the price level in Switzerland when they were imported.

The SNB’s losses are certainly better for Switzerland than inflation rates of ten percent.


Switzerland raises the drawbridge

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