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Inflation in Switzerland is higher than it has been for years.
Milena KalinEditor Economics
Everything gets more expensive. In the spring, inflation first made itself felt at the pump. Later, heating costs also increased. Since this year, the Swiss population has also felt the rise in electricity bills and rents. Consumers are also having to dig deeper into their pockets for groceries.
The latest figures from the Federal Statistical Office (FSO) on Wednesday morning show that annual inflation in Switzerland was 2.8 percent in 2022. But what does that mean exactly? Blick answers the most important questions.
Inflation, also known as cost of living, is a loss of purchasing power. Money loses value and goods therefore become more expensive for consumers. Annual inflation in Switzerland was 2.8 percent in 2022. This means that goods were 2.8 percent more expensive in 2022 than in the previous year.
Inflation was last this high in 2008. At that time, the financial crisis had sparked inflation. The last time inflation was over 3 percent was in 1993 – almost 30 years ago.
Why is inflation in 2022 higher than it has been for a long time?
Because of the corona pandemic, Switzerland has spent a lot of money. Thanks to short-time work compensation and other support measures, the Swiss economy remained stable.
After that, the economy overheated. The demand exploded, the companies could not keep up with production. Because goods were scarce, they became more expensive. “Inflation occurs when demand grows faster than supply,” explains economic historian Tobias Straumann (56).
The outbreak of war in Ukraine in February further exacerbated the crisis. Goods became even scarcer and therefore more expensive. In addition, energy prices rose suddenly. The reason: until the outbreak of the war, Europe and thus also Switzerland had obtained a large part of the gas from Russia.
Crude oil (and with it the petrol at the pump) also became more expensive after the outbreak of the war. In addition to gas, Russia also supplies oil. However, the oil price recovered quickly because Russian oil is easier to replace. Europe can draw on oil from North Africa or the Arabian Peninsula, for example.
How does Switzerland fare in an international comparison?
In an international comparison, Switzerland is holding up well. In Germany, annual inflation in 2022 was a whopping 7.9 percent. This has never been so high since the founding of the Federal Republic. In the USA, too, inflation last year ranged between 7.0 and 9.1 percent.
In addition, in Switzerland – unlike abroad – certain prices do not only follow the market. The electricity market in Switzerland, for example, is not liberalized for private customers. We therefore benefited from lower electricity prices until the end of 2022. Rents also do not react directly to inflation. This relieves Swiss households.
Which goods are most affected?
The prices of petroleum products, gas and automobiles rose the most. But housing costs also rose particularly sharply, in particular due to increased ancillary costs.
In addition, the prices of imported goods have risen significantly more than the prices of domestic products. Without the strong Swiss franc, import prices would have been significantly higher.
What can Switzerland do against inflation?
The Swiss National Bank (SNB) is fighting inflation by raising interest rates. She has already done this several times in 2022. Higher interest rates make investments more expensive and curb demand. The crux: if interest rates are raised too much, the SNB will choke the economy. A balancing act.
Consumers themselves cannot do much about inflation. You have no choice but to dig deeper into your pocket for the same products. Or buy less. This in turn would be a boomerang for the ailing Swiss economy.
“It’s important that people with a tight budget get full cost-of-living compensation – through social assistance or through wage increases,” says Straumann.
Is an end to inflation in sight?
Although inflation has already weakened again in recent months, there is no end in sight in sight. At the beginning of the year, rents are also rising sharply. And heating will also be significantly more expensive in 2023, which will also drive up ancillary costs. Straumann expects further increases.
Nevertheless, there is a ray of hope: “The forecasts are no longer as gloomy as they were in the summer of 2022,” says Straumann. Although economic growth will slow down significantly due to inflation, there will probably be no recession in 2023.
How is the Swiss economy doing?
As the international comparison shows, the Swiss economy is not doing badly. The strong Swiss franc plays a key role here.
The other currencies, such as the dollar and the euro, weakened against the Swiss franc. Switzerland can therefore, for example, import oil or other products from the EU at lower prices. Straumann says: “The appreciation of the Swiss franc has dampened the rise in import prices.”