Bloomberg News

Swiss Consumer Prices Decline Most in More Than Two Years

December 07, 2011

(Updates with comment from economist in sixth paragraph, BAK Basel forecast in seventh.)

Dec. 6 (Bloomberg) -- Switzerland’s consumer prices fell the most in more than two years in November, led by lower costs for imported goods, adding pressure on the central bank to raise its franc ceiling to protect the economy.

Consumer prices decreased 0.5 percent from a year earlier after falling an annual 0.1 percent in October, the Federal Statistics Office in Neuchatel said in an e-mailed statement today. That’s the biggest drop since October 2009. Economists forecast prices would decline 0.3 percent from a year earlier, according to the median of 15 estimates in a Bloomberg News survey. In the month, prices slipped 0.2 percent.

Swiss consumer prices may continue to fall as the economic slowdown deepens and the franc’s strength lowers prices of imported goods. Economists at UBS AG and Goldman Sachs Group Inc. have forecast the Swiss National Bank will raise its franc cap of 1.20 versus the euro, when policy makers meet on Dec. 15, to ward off deflation threats and bolster exports.

“I still don’t expect the SNB to act,” said Alexander Koch, an economist at UniCredit Group in Munich. “Before the central bank raises the franc limit, we need worse figures for the economy and consumer prices.”

The franc dropped after the report, depreciating as much as 0.5 percent versus the euro. It traded at 1.2384 against the single currency at 11:08 a.m. in Zurich.

Franc Strength

“The negative reading still predominantly reflects franc strength,” Maxime Botteron, an analyst at Credit Suisse Group AG, wrote in a note. “While inflation is set to remain negative, this is not deflation as the labor market remains solid, wage growth positive and credit is also expanding.”

Basel, Switzerland-based BAK Basel Economics research institute said today it expects consumer prices to drop 0.2 percent in 2012 instead of a previously projected gain of 0.5 percent. In 2013, prices will climb 1 percent, it said.

“Still, we don’t forecast deflation because in a deflationary scenario, consumers postpone purchases as they expect prices to decline,” said Alexis Bill Koerber, a senior economist at BAK Basel. “On the contrary, the fall in prices will bolster Swiss citizens’ purchasing power.”

At its last meeting in September, the SNB projected consumer prices would climb an average 0.4 percent this year before declining 0.3 percent in 2012. SNB Vice Chairman Thomas Jordan said in an interview with Le Matin Dimanche published on Nov. 27 the franc remains “highly valued” and that policy makers remain ready to take further measures if needed.

Under a European Union harmonized method, Swiss consumer prices fell 0.4 percent in the month and 0.8 percent in the year, today’s report showed. Prices of imported goods slumped 2.7 percent from a year earlier and 0.5 percent in the month. Costs of domestic goods rose 0.3 percent from a year earlier, while declining 0.1 percent from October.

--With assistance from Harumi Ichikura in London. Editors: Simone Meier, Jennifer M. Freedman

To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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