Swiss Inflation Drops to Zero as SNB Mulls More Rate Cuts

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(Bloomberg) — Swiss inflation slowed to the weakest in more than four years as the strong franc drives down the costs of imported goods.

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Annual consumer-price growth was zero in April, Switzerland’s statistics office said on Monday. That’s down from 0.3% in March and weaker than predicted by all but one analyst in a Bloomberg survey of economists.

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Inflation was pushed down by hotels and holiday accommodation, while clothing and vegetables were a driver, according to the government agency. 

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The core gauge — which excludes fresh and seasonal products as well as energy — also slowed more than anticipated, dropping to 0.6%. 

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April saw the franc appreciate against all major peers as US President Donald Trump’s on-again, off-again tariffs and fiscal policies pushed investors to havens like the Swiss currency. The country has a track record of weak inflation and the Swiss National Bank expects it to average just 0.4% this year. President Martin Schlegel has even warned that it could dip below zero in some months.

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Less economic activity could also weigh on prices after Swiss manufacturing on Friday showed the biggest drop in four years due to the twin shock of tariffs and the strong franc. The government previously dropped its growth forecast for this year.

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Weaker consumer prices have already forced the central bank to bring down its benchmark by 150 basis points in five consecutive steps to just 0.25%, with some economists now saying that a return to sub-zero interest rates is possible. 

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The next rate decision — on June 19 — may be too soon for such a move as the SNB will only have one additional inflation reading by then and Trump’s current reprieve in the trade war won’t be over before early July.

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Still, markets are fully pricing in a 25 basis-point cut at that meeting, bringing the policy rate to 0%. Price growth is also below the central bank’s most recent forecast, further strengthening the case for lowering borrowing costs.

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Schlegel could face questions on that when he speaks at a Zurich conference on Tuesday.

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At 2.2% in April, inflation in the euro area surrounding the country is significantly quicker than in Switzerland. Based on the European Union’s harmonized measure, the Swiss saw an advance of 0.3% in the period.

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—With assistance from Kristian Siedenburg, Harumi Ichikura and Joel Rinneby.

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