According to a survey by the Swiss State Secretariat for Economic Affairs (SECO), high inflation remains a major concern for Swiss households despite the decline in recent months. Indeed, while lower than Swiss National Bank expectations for the second quarter, inflation in April was 2.6% year-on-year, once again outside the target range of 0-2%.
However, three factors should help inflation to decline towards the midpoint of the target range over the next few months. First, the Swiss franc has appreciated by around 10% against the currencies of major trading partners over the past twelve months. The strength of the franc will dampen the prices of imported goods and services, which account for about one quarter of the Swiss CPI basket.
The second factor is the fall in energy prices. Chart 1 shows the price of Brent oil in Swiss francs and the Swiss CPI components for petrol and diesel. Changes in the price of Brent lead trends in retail fuel prices, with about 40% of the change in the former passed on to the latter. This is consistent with a tax component of around 50% of the retail price of fuel. The graph shows that the fuel CPI could drop by about 10% in the near term. Statistical analysis estimates that such a shock would be transmitted to other sectors of the economy, reducing consumer prices by about one percentage point over a year.1