Swiss consumer prices post sharpest fall in 50 years.


As we can now clearly see devaluing one’s currency, as it was done a few months ago by the Swiss National Bank, did nothing to stop CPI from falling. And the sooner the prices fall the sooner will this prolonged slump end. This is economics 101, but the Central Bankers don’t want to admit it and keep tinkering with interest rates and quantitative easing policies.

Yahoo Reuters feed. August 04, 2009.

UPDATE 2-Swiss consumer prices post sharpest fall in 50 yrs.

ZURICH, Aug 4 (Reuters) – Swiss consumer prices fell at the fastest rate in 50 years in July as retailers slashed prices for clothes and shoes in summer sales, underscoring deflation risks for the Swiss central bank to fight.
Consumer prices dropped 1.2 percent from a year ago and fell 0.7 from June, the Federal Statistics Office said on Tuesday.

Economists had forecast a 1.1 percent decline compared to July 2008, when inflation in Switzerland had hit 15-year high due to record oil prices.The deflationary effect from cheaper oil, which costs half of what it did a year ago, was set to ease soon, economists said, but the Swiss National Bank was likely to stay on alert as deflation risks from the weak economy persisted.

‘The SNB will undoubtedly keep policy accommodative as risks to growth and inflation remain on the downside,’ 4Cast analyst Saara Tuuli said.

The July data showed heating oil was 50 percent cheaper than a year ago and fuel prices dropped some 21 percent.

Core (Berlin: LJ1.BE – news) inflation data showed Switzerland had not entered a dangerous deflationary spiral of falling prices and fading consumer demand so far.

Stripping out volatile price components like food, beverages, tobacco, seasonal products, energy and fuel, core inflation was 0.9 percent, a notch higher than in June.

SNB ALERT

The SNB has taken drastic steps to fight deflation risks as the country faces the worst recession in over 30 years.

The SNB has cut its target for the 3-month franc LIBOR to 0.25 percent, offers money in daily repos at rates close to zero, and has intervened to keep the franc from rising.

Hopes of an end to the global recession have been rising in recent weeks as more and more economies — including the Swiss — have shown signs of stabilisation.

However, insolvencies in Switzerland look set to hit a record, the debt consultancy Creditreform said on Tuesday.

‘The economic crisis is not on summer holiday, because with 551 company bankruptcies a new record has been reached,’ it said. ‘More than 3,000 companies have gone bust in the first seven months, 3.5 percent more than in the record year 2004.’

The Swiss economy slipped into recession in mid-2008 and the central bank expects GDP to drop by up to 3 percent this year.

The strong franc, which still is some 10 percent firmer against the currencies of key Swiss export markets compared to the average of the pre-crisis year 2007, has hit exports as well as the country’s tourism industry.

The Swiss hotel association said hotel stays of foreigners dropped over 9 percent in the first six months of 2009 as mainly British and American citizens stayed away due to the economic crisis and the strong franc.

Economists said the weakness of the economy was likely to dampen price pressures going forward, allowing the SNB to keep rates low for an extended time.

‘We expect other central banks to start tightening monetary policy in the first half of next year, but the SNB will wait longer,’ Credit Suisse analyst Fabian Heller said.

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2 Comments

  1. Posted September 2, 2009 at 5:32 pm | Permalink

    Cool site, love the info.


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