Swiss inflation hits fresh high

ZURICH - Swiss consumer price inflation rose more than expected to a 14-1/2-year high in March driven by higher oil prices, deepening the Swiss National Bank’s policy dilemma as it confronts higher prices and a weakening economy.

By (Reuters)

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Published: Fri 4 Apr 2008, 3:35 PM

Last updated: Sun 5 Apr 2015, 11:35 AM

Consumer prices rose 0.3 percent from February, taking the annual inflation rate to 2.6 percent, the Federal Statistics Office said on Friday.

The March figure was the highest rate since October 1993 and above the Swiss National Bank’s 2-percent threshold for price stability for the fourth month running.

”Not pleasant reading for the SNB,” said Eoin O’Callaghan, economist at BNP Paribas.

“The elevated level of inflation, particularly the ongoing and increasingly broad rise in core inflation, raises the burden of bad news that the SNB needs to see before it can cut rates,” he said.

In a Reuters poll, economists had expected annual inflation to inch up to 2.5 percent from 2.4 percent in February.ECONCH

The statistics office said that the rise in March was mainly due to higher prices for fuel and heating oil, but also noted price increases for food, leisure and restaurant meals.

Core inflation - stripping out volatile prices for energy and food—rose to 1.4 percent from 1.2 percent in February and climbed to 1.7 percent when taking out the effect of government set prices.

QUANDARY

Rising food and energy prices have driven inflation in the euro zone to a record 3.5 percent in March, leaving the European Central Bank with a similar quandary when it meets to decide on its current benchmark rate of 4 percent next week.

The SNB kept its target rate for the 3-month Swiss franc LIBOR unchanged at 2.75 percent at its March meeting despite higher price pressures as the growth outlook has deteriorated.

But the central bank warned inflation could spin out of control if oil prices climbed further.

Oil prices have eased off record highs hit mid-March but remain above $100 per barrel.CLc1LCOc1

“For the SNB, it is too early to signal interest rate cuts as inflation is above its threshold and growth is still robust,” said Sarasin analyst Alessandro Bee.

“But in the second half of the year the global growth slowdown will hit Switzerland, providing the SNB with the leeway to cut rates. We expect the first cut in September,” he said.

Weaker indicators such as the KOF growth barometer have recently reinforced views of a slowdown of the Swiss economy, which grew 3.1 percent 2007, posting its fourth year with growth well above its long-term trend.

Worries about the impact of the credit crisis have also increased as the country’s largest bank UBSUBSN.VX now tops the list of victims of the U.S. subprime mortgage market collapse.



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