As the European Union fights inflation by raising interest rates, other countries’ economies are showing signs of recovery. In the USA, for example, the price increase was reduced from 10.1% shortly after the start of the invasion of Ukraine to just 1.7%. But if there is one country that has attracted attention in this regard, it is Switzerland, whose peak has not exceeded 3.3% during this time.
According to Eurostat data, the EU recorded a CPI of 6.1% last July, which is very far from the Community target of 2%. Switzerland’s rate was 2.1%, three tenths higher than the previous month. There are several reasons for this low inflation.
The strength of the Swiss franc is one of the main reasons for this price stability. This currency is considered a “safe haven” and is needed by investors who want to park their money in the country to stimulate its demand and increase its value. With a stronger currency than the rest, imports become cheaper, slowing inflation. However, this situation in turn reduces export opportunities, which is offset by the quality of products, mainly from the chemical and pharmaceutical industries.
The low demand for fossil fuels also contributes to this. Switzerland is a country that covers its electricity needs from hydropower and nuclear energy. It is also a highly regulated monopoly market in which providers have to set their prices according to the costs of efficient electricity generation. This means that marginal costs cannot be passed on to consumers.
Energy is also a key theme in the consumer price index and therefore does not have such a drastic impact on Switzerland’s rate compared to Europe and the United States.
This price interventionism does not only apply to energy. Of the products used to calculate the inflation rate, a third are subject to price regulation, which is not the case in any other country in Europe.