The Swiss CPI remained unchanged in April 2025, not only when compared with the previous month but also on a yoy basis.
Surely, the 0.0 reading for April 2025 must mean that the next CPI print (for May) will be negative.
And a negative CPI print can only mean one thing: Deflation.
The deflationary effects have evidently been catalysed due to a turbo-charged CHF.
The SNB now sees the CHF’s record strength as a major bugbear.
Yet, is it possible, that not so far back in the past, the strength in the CHF had shielded the Swiss economy from purchasing-power busting inflation super-spikes?
Ironically, yes.
You might recall that while the Fed and the ECB dealt with high single-digit inflation, in the aftermath of Russia’s invasion of Ukraine in early 2022, through a rapid rate tightening exercise, the SNB increased rates only up to 1.75%.
Swiss average inflation, in 2022, was only 2.8%.
Incredible, yeah?
It was the strong CHF that insulated Switzerland then.
And yes, there was SNB intervention as well.
In 2022.
And especially in 2023, as the SNB turned into a large-scale seller of foreign currencies. In 2023 alone, the SNB sold $150 billion worth of foreign currency.
To understand the enormity of the SNB’s decision ─ sell foreign currencies to strengthen the CHF as a shield against imported inflation ─ you must consider that the SNB unwound what was essentially a carry trade, with the CHF as a funding currency, at potentially the worst possible time only because it stayed loyal to its primary mandate: price stability.
The situation that the SNB confronts now is decidedly different.
Against the twin backdrop of a temporary pause in the 31% tariffs against Swiss Exports and a Trump administration that has warned the Swiss against currency intervention, would the SNB go with a pure-play interest rate focused policy to manage an ‘imported deflation’ situation?
Or would it (in some ways true to its reputation: remember when the SNB stunned the currency markets on 15 Jan 2015? 😉), in a neat inversion of its 2022-23 playbook, intervene again?
