"The SNB can ... congratulate themselves that their policies, including the 1.20 Swiss franc cap, are very slowly working"
- Global Informa Markets analyst Tony Nyman
Back to September 2011 the Swiss National Bank decided to impose a cap on the Swiss Franc against the Euro in order to limit currency's appreciation as well as avoid deflation and to assure a sustainable growth in the Alpine economy. For more than two years this measures helped the economy to grow albeit slowly, however, the latest data suggests Switzerland is facing risk of negative inflation once again.
On Friday the Office for National Statistics said consumer prices declined 0.2% in December, after staying flat in November, and below analysts' forecasts for a 0.1% increase. On a yearly basis prices steadied at 0.1%, yet missing estimates of a 0.2% gain. Core inflation, which strips out volatile components, remained unchanged year-on-year over the corresponding period, compared with a 0.1% rise seen in November. This leads the average annualised inflation last year to 0.2%. The inflation data contrasts with other reports, such as KOF leading indicator, which predicts the economy will build up steam in the first half of 2014.
What is more important is the fact that the gap between Swiss and European inflation has narrowed to 0.5%. In both cases lower energy and food prices pushed the CPI lower. And when the Eurozone economy will stabilize, the question will be who will start raising rate first– the SNB or the ECB?
© Dukascopy Bank SA