Swiss inflation rate tumbles as economic worries worsen in region

Swiss inflation rate tumbles as economic worries worsen in region

The Swiss National Bank has announced plans to enact a negative deposit rate, which will take effect Jan. 22, to fight deflationary concerns that plague the euro zone.

Switzerland’s inflation rate tumbled to its lowest level in more than a year, raising concerns about the economy and boosting the central bank’s decision to enact a negative interest rate.

Consumer prices were down 0.3 percent in December after dropping 0.1 percent the month before, according to the nation’s federal statistics office as reported by Bloomberg News.

It is at its lowest level since October 2013, and is weaker than the median estimate of negative 0.2 percent that was projected in Bloomberg’s survey of 12 economists.

David Marmet, economist at Zuercher Kantonalbank in Zurich, said that a decline in crude prices was good for the consumer, but was harming Switzerland’s aggregate output by nailing oil trading companies in Geneva. Ultimately, it means deflationary risks for the central bank which it will have to deal with.

As a result, the bank announced a negative deposit rate, which is intended to reinforce its three-year-old minimum exchange rate of 1.20 per euro. The rate takes effect on Jan. 22, which will also be the date the European Central Bank holds its next rate meeting, which could result in plans to buy government debt to boost inflation in the euro zone.

Tumbling crude prices are primarily to blame for Swiss consumer prices dropping 0.5 percent in December compared to a month earlier. Medicines and clothing were also declining in prices as well.

The Swiss inflation rate is slightly better than the euro zone as a whole at negative 0.1 percent in December, compared to 0.2 percent for the European Union.

Swiss National Bank President Thomas Jordan said that the nation wasn’t yet in a state of deflation, but the risk was decreasing, hence the need for action.

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