Swiss Inflation Declines

ZURICH (Reuters) – Swiss inflation fell to its lowest level in over three years in October, according to government data released on Friday, indicating potential interest rate cuts by the Swiss National Bank (SNB) throughout 2025.

Swiss consumer prices increased by 0.6% in October compared to the previous year, which was lower than the 0.8% forecast from a Reuters poll. This price rise marked the lowest since July 2021, driven down by cheaper food, clothing, and household goods.

Prices decreased by 0.1% month-on-month, as reported by the Federal Statistics Office (FSO).

Following the report, the Swiss franc dropped to a five-week low, as markets anticipate the SNB will lower borrowing costs to prevent inflation from falling below its target range of 0-2%. The SNB declined to comment on the data.

Currently, markets indicate a 72% chance that the central bank will reduce rates from 1% to 0.75% during its next meeting on December 12, and a 68% probability it will further lower rates to 0.5% by March.

Karsten Junius, an economist at J.Safra Sarasin, noted, "The situation with falling inflation is becoming uncomfortable for the SNB, which will certainly cut rates by 25 basis points in December, although I wouldn't be surprised if they cut by 50 basis points. I think it will prefer to keep something in reserve, cutting again by 25 basis points in March and June."

GianLuigi Mandruzzato, an economist at EFG Bank, mentioned that October's inflation was significantly below the SNB's forecast of 1% for the fourth quarter. He added that the data raises the possibility that the SNB could consider a larger 0.5% rate cut as the risk of negative inflation in 2025, even temporarily, has increased considerably.