March 20, 2023
How Switzerland beat excessive inflation; Why the Swiss economic system is robust

How Switzerland beat excessive inflation; Why the Swiss economic system is robust

ZURICH — As many nations throughout the globe battle stubbornly excessive inflation, the rise in costs has been far much less dramatic in Switzerland, a small mountainous nation in western Europe.

Inflation in Switzerland hit a 29-year excessive of three.5% in 2022. Whereas nonetheless excessive by Swiss requirements, it’s effectively under the double-digit charges of different superior economies, just like the U.S. (9.1%), the U.Ok. (11.1%) and the euro zone (10.6%).

“I believe they really feel it extra overseas than right here in Switzerland,” one shopper in Zurich advised CNBC final month. “My mom resides in Germany, in Berlin, and he or she is telling me all the time [that] every little thing turned so costly.”

What are the components that helped shelter Switzerland from rampant inflation? CNBC explores.

Costs ranging from a excessive base

Switzerland is without doubt one of the world’s wealthiest nations, with a GDP per capita that outstrips that of different main economies, just like the U.S., Japan and Germany.

Additionally it is house to a number of the richest residents on the earth, with a imply wealth of $696,604 per grownup — and a steep cost-of-living to match. 

The Swiss cities of Zurich and Geneva held regular among the many world’s 10 costliest cities final yr, in line with the Economist Intelligence Unit, at the same time as inflation pushed up residing prices in different dear locations, similar to Singapore and New York. 

The Swiss cities of Zurich and Geneva held regular in a rating of the world’s costliest cities in 2022.


Because of this, Swiss residents are typically much less impacted by worth rises, as they have an inclination to spend a decrease proportion of their earnings on necessities similar to meals and lodging, versus on discretionary objects.

“As a result of persons are on common fairly wealthy, the share of meals within the total price range of households shouldn’t be as massive as perhaps in different nations,” Tobias Straumann, professor of financial historical past on the College of Zurich, advised CNBC.

“We even have inequality, after all. However, from a world perspective, now we have, I believe, a really well-functioning social coverage,” he added.

The steadiness of the Swiss franc

One more reason for Switzerland’s relative worth stability stems from the robust Swiss franc.

The nation’s foreign money has steadily strengthened, rising in worth to achieve parity towards the euro in 2022. Whereas many currencies plunged towards an appreciating U.S. greenback, the Swiss franc held regular amid volatility in Europe.

That is largely as a result of its standing as a “protected haven” foreign money or defensive asset. The Swiss franc is closely backed by massive reserve of gold, bonds and monetary property, which assist the Swiss Nationwide Financial institution make sure the foreign money’s stability throughout instances of volatility. 

Whereas many currencies plunged towards an appreciating U.S. greenback in 2022, the Swiss franc held regular amid volatility in Europe.


That additionally advantages Switzerland, an economic system closely depending on worldwide commerce.  

Switzerland imports round $302 billion value of products and companies every year, nearly all of which come from neighboring EU nations. A stronger Swiss franc gives an efficient low cost on these imports. 

Switzerland in the meantime exports a close to equal $305 billion yearly — largely comprising increased worth items and companies, similar to watches and prescribed drugs, that are much less prone to cost fluctuations than are low-margin, mass-produced commodities.

A resilient vitality provide

Switzerland can also be much less uncovered to a number of the exterior components that pushed costs increased in 2022, similar to Russia’s struggle in Ukraine. 

House to a mountainous topography and greater than 1,500 lakes, Switzerland is much less reliant on oil and gasoline imports than a few of its European neighbors, with hydroelectricity enjoying an essential function in its vitality provide.

Swiss vitality suppliers are additionally largely publicly owned, which means that they’re much less uncovered to excessive market volatility via monetary security nets, whereas being topic to stricter pricing regulation.

An aerial view exhibits the Vieux-Emosson dam and the Emosson dam, a part of the Nant de Drance pumped storage electrical energy energy plant above Finhaut, western Switzerland. The nation has been leaning on its home hydropower manufacturing amid a wider vitality disaster in Europe provoked by Russia’s invasion of Ukraine.

Fabrice Coffrini | Afp | Getty Photos

On the finish of 2022, vitality costs in Switzerland rose at a price of 16.2% — under the degrees confronted by main friends like Germany (25%), the Netherlands (30%), the U.Ok. (52.3%) and Italy (64.7%). The nation’s vitality regulator now expects costs to rise by an extra 27% in 2023, with the typical family vitality invoice topping 1,215 Swiss francs ($1,238).

Jean-Claude Huber, supervisor of Resort Piz Buin Klosters within the east of Switzerland, stated that the standardization of long-term vitality contracts has helped shelter companies like his from any main worth rises this yr.  

The four-star lodge’s dynamic pricing construction additionally signifies that Huber has been capable of move on worth hikes of round 5-10% to prospects with out hurting demand. 

“We will play with the charges far more than in case you have mounted charges on a regular basis, and that helps us lots. I am positive the prices will probably be increased than earlier than, however the turnover needs to be increased as effectively,” Huber stated. 

Worth controls on items and companies

Alongside vitality, Switzerland additionally has stringent controls on the worth of products and companies, which additionally makes them much less prone to inflation-led fluctuations.

Of the core merchandise used to measure inflation within the euro zone, together with meals, housing and transport, virtually one third (30%) are topic to cost regulation in Switzerland — greater than in another European nation.

The value of products and companies are tightly regulated in Switzerland, making them much less prone to wider, market-driven fluctuations


Swiss meals costs rose at an annualized price of 4.0% in December final yr, in contrast with 11.9% within the U.S., 16.9% within the U.Ok., and 19.8% in Germany. 

Excessive tariffs on sure agricultural imports additionally imply that domestically produced meals, similar to milk and cheese, are preferentially priced and fewer impacted by actions in world meals markets. That, in flip, has helped stimulate the nation’s economic system.

“We attempt to purchase as a lot as potential Swiss, however even regional,” Huber stated. “Lengthy-term, you need to have a neighborhood trade working, functioning.”

Inflation to fall under 2% by 2024

That does not imply that Swiss customers have been completely proof against latest worth hikes. Locals who spoke to CNBC famous a relative rise within the worth of rental lodging, in addition to in that of some meals merchandise.

“Whenever you’re a tenant … I believe that is perhaps some extent which will increase a bit,” one shopper advised CNBC.

The Swiss franc is closely backed by massive reserve of gold, bonds and monetary property, which assist the Swiss Nationwide Financial institution make sure the foreign money’s stability throughout instances of volatility.

Bloomberg Artistic Photographs | Getty Photos

Nonetheless, the Swiss Nationwide Financial institution stated in December that it sees inflation falling to a median of two.4% in 2023, earlier than reaching 1.8% in 2024.

That will are available in below the financial institution’s 2% goal. Nonetheless, economists stated that’s unlikely to harm the economic system.

“Even when now we have a type of recessionary state of affairs, persons are nonetheless coming in, and that, after all, stabilizes demand,” Straumann stated, referring to the free motion of individuals throughout Europe. “I count on the identical factor for this yr, 2023, and possibly additionally for 2024.”

What different nations can be taught from Switzerland

Switzerland’s distinctive financial panorama is a long time within the making and troublesome for many nations to duplicate wholesale. Its alternate price coverage, as an illustration, couldn’t be mirrored by the broader euro zone, given the disparate economies concerned.

Nonetheless, Straumann stated that the nationalization of Swiss vitality provision supplied an essential lesson to different nations, notably these nations in Europe that underwent a broad shift to privatization and are actually paying the worth.

“Within the medium to short-term, that was an excellent thought,” stated of the privatization of vitality provide. “But it surely’s not very resilient and they’re haunted by that now.”

“On the time, many individuals stated the Swiss are too conservative,” he added. “However I would say on reflection it was an excellent resolution.”

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