By Ed Frankl
Swiss inflation edged up in the final month of 2025, likely alleviating the pressure on the country's central bank to cut rates below zero.
Inflation climbed to 0.1% in December from 0.0% in November, the first rise in five months, Switzerland's statistics office said Thursday.
While lower-than-expected inflation in recent months and an economy that contracted in the third quarter raised some expectations that the Swiss National Bank could cut rates again below zero, the inching up of inflation could allay some nerves among policymakers.
The SNB held its key rate at 0% for a second straight meeting in December, after six consecutive quarterly cuts. It said further cuts remained an option.
But its Chairman Martin Schlegel has repeatedly said there is a higher bar to cutting rates below zero than to lowering borrowing costs when rates were positive, given the strain it causes to savers, bank profits and pension funds. The Alpine nation had negative interest rates for more than seven years until September 2022.
The bank said in December that while inflation in recent months had been lower than forecast, in the medium term, inflation pressures were virtually unchanged compared to its prior meeting in September. Investors expect the SNB to hold its key rate again in March.
The SNB expects annual inflation to average at 0.3% for 2026 and 0.6% for 2027, after 0.2% in 2025. Its target is for inflation between 0% and 2%.
Pantheon Macroeconomics Europe economist Ankita Amajuri said she expects inflation to stay within a 0.1% to 0.3% range through the first half of 2026 before it starts to slowly rise.
"We expect inflation to start picking up gradually in the last quarter of the year, and reach the middle of the SNB's inflation target range in 2027. We are therefore sticking to our view that the SNB will leave its policy setting unchanged over the course of 2026," she said in a note to clients.
The Swiss franc barely reacted on the inflation data. While it has been relatively stable against the dollar for months, it has gained more than 14% since the start of 2025, as investors flocked to the currency as a safe haven against geopolitical concerns.
A stronger franc against other currencies makes imports cheaper, thereby lowering inflation, but also makes exports more expensive and less attractive to consumers in other nations. Should prices fall for a sustained period, deflation could occur that hurts economic growth.
Domestic inflation--which makes up around three-quarters of the basket--was 0.5% in December from 0.4% in November, while imported-products prices dropped 1.6% from a 1.3% fall.
Prices for hotels and tourism-related services picked up in December, offset by package holidays, medicines and some vegetables, the statistics agency said.
Recent U.S. tariffs have also added pressure on Switzerland's key luxury watchmakers and machinery industry, though 39% import duties threatened by the Trump administration were later reduced to 15%. The tariff hike prompted a 0.5% economic contraction between July and September, although economic performance is expected to have recovered toward the end of last year.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
01-08-26 0408ET
