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Switzerland: The country left behind by inflation

An employee at the parcel acceptance delivery address Konstanz moves parcels in a branch in Konstanz
An employee of the parcel acceptance delivery address Konstanz moves parcels at a branch in Konstanz, Germany, March 4, 2022. REUTERS/Arnd Wiegmann

March 11, 2022

By Paul Carrel

BERN (Reuters) – While the rest of Europe is grappling with rising prices, Switzerland’s inflation is so tame that some key costs are actually falling.

The price of healthcare – a large part of the Swiss household budget – fell 0.5% yoy in February as headline inflation hit 2.2%. That was the highest inflation rate since 2008, but still only a fraction of the level in other industrialized countries.

A combination of factors are behind the moderate price pressures in Switzerland: consumer demand for better deals, an energy mix that leaves the country less exposed than others to rising oil and gas costs, wage moderation and some protection from import price inflation from the strong francs.

Certainly part of the reason Switzerland has low inflation is that the cost of living here is already so high.

“One of the aspects of Switzerland is that we have high prices for pretty much everything compared to our neighbors in Europe,” said Nannette Hechler-Fayd’herbe, Global Head of Economics & Research at Credit Suisse.

Experienced Swiss consumers have found some workarounds.

An hour’s drive from Zurich, just across the border into Germany, a cottage industry of “delivery address” companies has developed, charging Swiss customers a small fee to hold and later collect goods they order at bargain German prices.

“People come here because they can shop cheaply,” says entrepreneur Mandy Klein, a German who started her home-delivery business in 2009 and now operates two depots in the picturesque German border town of Konstanz am See.

The brisk delivery traffic in Constance shows the efforts of Swiss households to reduce their living costs wherever possible. Nevertheless, Eurostat figures show that the price level for consumer spending in Switzerland in 2020 was still 60% above the euro area average.

As a result, consumer groups fed up with Switzerland as a “high-price island” have lobbied for political action, leading to two legislative changes earlier this year to give households a better deal.

The first tightened Swiss antitrust laws to prevent companies from raising their prices for the Swiss market.

The second measure banned so-called geo-blocking, which retailers used to prevent online shoppers from buying cheaper products or services from websites abroad, for example by redirecting them to Swiss websites.

Prisca Birrer-Heimo, a center-left Social Democrat MP who spearheaded a “fair price” initiative calling for reforms, has already seen an impact.

“There’s still potential, but we’ve found that the huge price differences aren’t as big as they used to be,” she told Reuters.

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Specific characteristics of Swiss markets and the weighting of certain key items in the Consumer Price Index (CPI) also help explain why Swiss inflation is so low.

Healthcare provided by private companies, for example, makes up 17% of the CPI index, compared to 7% in the United States and 5% in Germany, OECD data shows. The government has asked health insurance companies to cut premiums.

“This was an area that, rather than inflation and price increases, has seen the opposite, driven by political pressure,” said Credit Suisse’s Hechler-Fayd’herbe.

Thanks to Switzerland’s lakes, rivers and mountainous geology, hydropower accounts for around 57% of the country’s energy production, says the Federal Office of Energy, leaving the Swiss far less exposed than others to rising oil and gas prices.

The resulting efficiencies mean that energy accounts for just 5% of Switzerland’s CPI basket, OECD data shows, compared with 7% in the United States and 10% in Germany, where consumers are much more exposed to rising fossil fuel prices.

“Our best guess is that (average) inflation in Switzerland will be 1.8% in 2022, although the recent rise in oil prices increases the risk of a slightly higher rate,” said Credit Suisse’s Hechler-Fayd’herbe . “For 2023 we assume average inflation of 1.0%.”

Since wages are already higher than in almost all other European countries, there is less pressure for salary increases. The telecom operator Swisscom will only increase wages by 0.9 percent this year.

The strong Swiss franc also helps. Viewed as a safe haven, the franc briefly rose above par against the euro this month, hitting a seven-year high.

The currency’s purchasing power offers Switzerland some protection against higher import costs and contributes to the stable domestic price environment, giving exporters the opportunity to gain an advantage over foreign competitors who face higher inflation.

Jean-Philippe Kohl, vice director and head of economic policy at electrical and engineering group Swissmem, said half of the sector’s exports go to the euro zone, where inflation is close to 6%.

“Sooner or later a Swiss company that makes a product here and sells it in the eurozone will be able to sell it at a higher price… so take advantage of that,” he said.

(Reporting by Paul Carrel; Additional reporting by Arnd Wiegmann; Editing by Susan Fenton)

https://www.oann.com/switzerland-the-land-that-inflation-left-behind/?utm_source=rss&utm_medium=rss&utm_campaign=switzerland-the-land-that-inflation-left-behind Switzerland: The country left behind by inflation

DUSTIN JONES

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