Paul Carrel

BERN, (Reuters) – While Europe struggles with rising prices, Switzerland is experiencing a calming inflation. Some key costs in Switzerland are actually decreasing.

Inflation was 2.2% in February and the price of healthcare, which is a large part of Swiss households’ budgets, fell 0.5%. This was the highest level of inflation since 2008. However, it is still a fraction of what other industrialized countries are experiencing.

Switzerland is experiencing modest price pressures due to several factors. These include consumers demanding better deals, an oil mix that reduces the country’s exposure to high-priced energy, wage restraint and some protection from inflation caused by the strong franc.

Low inflation in Switzerland is a result of high living costs.

“One of the aspects of Switzerland is that we tend to have high prices in practically everything when you compare it with our neighbours in Europe,” said Nannette Hechler-Fayd’herbe, global head of economics & research at Credit Suisse (SIX:).

Some workarounds have been found by smart Swiss customers.

One hour drive away from Zurich is a cottage sector of “delivery addresses” firms. These companies charge customers in Switzerland a modest fee to store goods at German-reduced prices. Customers can then collect them later.

Mandy Klein (entrepreneur), a German woman who began her business as a delivery service from home in 2009, now has two locations in Constance on the beautiful lakeside German border.

Constance’s fast delivery commerce shows that Swiss households are determined to cut down on their living costs. Eurostat statistics show that household consumption costs in Switzerland were still at 60% above the average for the euro zone in 2020.

Consumer groups fed up with Switzerland’s status as a high-priced island have lobbyed for legislative action. Two changes were made to the law in January, giving better deals to households.

First, the Swiss cartel law was strengthened to prevent businesses from raising prices on the Swiss market.

Geo-blocking is the second ban. It’s a method used by sellers to block online customers buying products and services cheaper from overseas sites. They redirect them, for instance, to Swiss websites.

Prisca Birrer Heimo is a Social Democrat lawmaker from the Centre-left who led a ‘fair Price Initiative’ to demand reform. She has already seen results.

According to her, “There’s still potential. But we have seen that the vast price gaps aren’t as significant as they used to be.”

MONEY SPINNER

Inflation is low because of specific characteristics in Switzerland, such as the weighting of key items in the Consumer Price Index (CPI), and other market-specific factors.

For instance, healthcare provided by private businesses accounts for 17%, compared to 7% for the United States and 5% for Germany. OECD data also show that healthcare is responsible for 5% of the CPI. Health insurance providers have been urged by the government to reduce their premia.

Credit Suisse’s Hechler Fayd’herbe stated, “This area has not created inflation or price rises, but has instead seen the opposite out of political pressure.”

According to the Federal Energy Office, 57% of Switzerland’s energy is produced by hydropower. This means that the Swiss are less vulnerable to rising oil prices than other countries.

The resulting efficiencies means that energy accounts for just 5% in the Swiss CPI basket. This compares to 7% and 10% respectively in the United States, Germany and the United Kingdom, which are much more vulnerable to rising prices of fossil fuels.

Hechler-Fayd’herbe from Credit Suisse stated that the best estimate is that the average inflation rate in Switzerland for 2022 is 1.8%. But, recent increases in oil prices increase the possibility of a higher rate. We expect inflation to average 1.0% in 2023.

There is little pressure to raise wages, as wages are already much higher in Europe than they were elsewhere. Only 0.9% is being added by Swisscom, a telecoms operator.

It is also a good option to have a strong franc. The franc is seen as a safety haven and briefly rose to parity with euro this month, hitting a seven year high.

The purchasing power of the currency provides Switzerland with some protection from higher import costs. It also feeds into the stability in domestic prices, which gives exporters an advantage over rivals who face higher inflation.

Jean-Philippe Kohl is vice-director and chief of economics at Swissmem’s electrical and mechanical engineering sector group. He said that half the sector’s exports are to the Euro zone where inflation is close to 6%.

He stated that “Sooner, or later” a Swiss company will be able to export a product from Switzerland at a lower price and make a profit in the Euro zone.