Apartment rents in Switzerland have increased by 3.4%, leading to a rise in inflation. However, this increase was balanced out by a decline in other prices, keeping Swiss inflation constant at 1.4% in May compared to the same month last year. The significant rise in apartment rents has had a major impact on inflation as housing costs have a weight of 15% in the price index.
The Federal Statistical Office (BfS) collects rental prices once a quarter, leading to a delay in reflecting monthly changes in rental costs in inflation data. In May, rental prices were included for the first time since February, revealing the influence of the reference interest rate for tenancies raised in December. This resulted in 19% of new tenancies in May experiencing rent increases.
The latest inflation data present different interpretations for the Swiss National Bank’s upcoming monetary policy assessment. Depending on whether housing costs are included or excluded, inflation could be seen at either 1.4% or 0.9%. This may influence the decision for further interest rate cuts by the SNB.
The developments in the value of the Swiss franc and the impact on imports also play a role in the inflation rate. A weaker franc benefits domestic exporters but poses a risk of increased import costs leading to imported inflation. The continuing lower cost of imported goods has contributed to inflation remaining due to domestic goods.
SNB President Thomas Jordan highlighted that the current interest rate is close to the equilibrium real interest rate in a recent speech. This suggests that the interest rate level is not likely to slow down the economy. With a robust Swiss economy and a stimulating effect from the weaker franc, there may be limited justification for further monetary policy easing at this time.