Economic perspectives: Fear of inflation in Switzerland is unfounded in the short term

Annual inflation in the US rose to 4.2% in April 2021 – its highest level since 2008. The rise – which benefited from base effects – is a direct consequence of the reopening of the economy and the resulting increase in consumption. This trend is likely to reach its peak in the next few months, which could further exacerbate fears of inflation.

In Europe, too, it can be assumed that inflation will increase to some extent. However, it is questionable whether higher consumer prices will be sustainable, as there are still no signs of widespread wage rises in the current environment. From the ECB’s point of view, the difficulty is mainly likely to be that the European bond market could allow itself to be infected by US yields, which raises the question of when the ECB can reasonably begin to scale back its pandemic emergency purchase programme (PEPP).

Consumer prices may have risen back into positive territory (+0.3%) recently, although inflation levels generally tend to vary greatly in Switzerland. While the price of a basket of goods in Switzerland has actually gone down slightly in the last 12 years, it has actually gone up by 20% in Germany and the US Economic growth and inflation in Switzerland are projected to amount to 3.3% and 0.4%, respectively, this year. Inflation in Switzerland therefore seems manageable. However, a potential decline in demand from trading partners as a result of inflation, as well as the special status of the Swiss currency as a safe haven, could present risks for the Swiss economy in the medium term.