Swiss Core Consumer Inflation October 2010

In October 2010, Switzerland’s headline consumer inflation was reported at 0.2%y/y, down from 0.3%y/y in September 2010 and a recent high of 1.4%y/y in March 2010. More interestingly, core consumer inflation (which excludes food, beverages, and energy) fell into deflation in October at -0.1%y/y.

Normally, Switzerland’s consumer inflation rate would not attract a huge amount of attention. However, it is currently more interestingly for a few reasons:

• This is the first time that Switzerland’s core consumer inflation has recorded deflation since the data started in 1993.
  
  
• The Swiss Franc has strengthened significantly this year, appreciating by a substantial 8.0% in 2010. The strength of the Swiss Franc has out-paced the appreciation of most emerging market currencies this year, but it highlights the impact of a strong currency on inflation. This is clearly also a factor in South Africa.
  
  
• The low Swiss inflation rate also reflects the lagged effect of the recent recession, which is a global phenomenon.

The record low core inflation rate in Switzerland re-iterates the global concern (and especially the Fed’s concern) about deflation, despite the massive additional increase in liquidity by the Fed. US core consumer inflation is trending lower and was last recorded at a mere 0.8%y/y, the lowest level since 1961. Euro-area core consumer inflation is at 1.0%y/y and Japan’s core consumer inflation is firmly in deflation at -1.5%y/y.

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