Switzerland’s inflation rate is now at its lowest point in years: zero percent. Is this good or bad news for the consumers and the economy?
In April, inflation in Switzerland fell to zero percent, from 0.3 percent the previous month, according to the Federal Statistical Office (FSO).
One of the reasons for this drop is that the franc gained in value against all major currencies in April, as US tariffs helped make the franc a safe haven for investors.
READ ALSO: Swiss franc strengthens after Trump’s tariffs, but is that good for consumers?
As a comparison, the rate in the eurozone was 2.2 percent in April.
Though this may come as a surprise to many people, in fact the EU’s rate is actually better for the economy than Switzerland’s.
Why is that?
Obviously, it is better for consumers and economy in general when inflation is low versus high.
One of the benefits of a low inflation for consumers is increased purchasing power.
Also, interest rates are lower, making it advantageous for consumers to get mortgages and other loans.
This is the general picture, but not the whole picture.
That’s because very low inflation, like the current zero-percent rate, may be good for price stability and loans, but it is likely to backfire in terms of growing your assets, such as savings and other investments you may have.
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Lower rates, less money
According to Swiss economists, the Swiss National Bank (SNB) is likely to cut its interest rate from the current 0,25 to 0 percent.
This would mean that interest on your money will bottom out as well.
But that’s not all — there is also another downside to consider.
And that is ‘negative inflation’ — technically called deflation — which could have some adverse effects on the consumers.
While on the surface it may seem like deflation benefits consumers because prices keep falling and people can afford to buy more with the same income, in reality it isn’t so.
What happens is that over time, deflation can lead to the weakening of the economy and, eventually, lower wages.
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What lies ahead?
While some economists have mentioned the possibility of deflation in Switzerland, that is not written in stone.
In all its previous actions, the central bank has consistently acted responsibly, in favour of the country’s economy and its consumers as well.
So it remains to be seen what its next step will be.
