Everything is getting more expensive. In the spring swelling made itself felt first in the pump. Later, heating costs also increased. Since this year, the Swiss population has also felt an increase in electricity bills and rents. Consumers also have to dig deeper into their pockets for groceries.
The latest figures from the Federal Statistical Office (FSO) Wednesday morning show annual inflation in Switzerland at 2.8 percent in 2022. But what exactly does this mean? Blick answers the most important questions.
What is inflation?
Inflation, also known as the cost of living, is the loss of purchasing power. Money loses value and therefore goods become more expensive for consumers. Annual inflation in Switzerland was 2.8 percent in 2022. This means goods are 2.8 percent more expensive in 2022 than the previous year.
Inflation was last this high in 2008. At the time, the financial crisis fueled inflation. The last time inflation rose above 3 percent was in 1993 – almost 30 years ago.
Why is inflation higher in 2022 than it has been in a long time?
Switzerland spent a lot of money due to the corona epidemic. The Swiss economy remained stable thanks to short-time work compensation and other support measures.
After that, the economy overheated. Demand exploded, companies became unable to keep up with production. As goods were scarce, they became more expensive. “Inflation occurs when demand grows faster than supply,” explains economic historian Tobias Straumann (56).
The outbreak of war in Ukraine in February worsened the crisis. Goods became more scarce and therefore more expensive. In addition, energy prices suddenly rose. The reason: Until the war broke out, Europe, and therefore Switzerland, had supplied most of the gas from Russia.
Crude oil (and with it gasoline at the pump) also became more expensive after the outbreak of war. Russia supplies oil as well as natural gas. However, the price of oil quickly rebounded as Russian oil was easier to replace. For example, it can buy oil from Europe, North Africa or the Arabian Peninsula.
How does Switzerland perform in an international comparison?
In an international comparison, Switzerland is doing well. Annual inflation in Germany in 2022 was a tremendous 7.9 percent. This has never been higher since the founding of the Federal Republic. Last year, inflation in the USA ranged between 7.0 and 9.1 percent.
Also in Switzerland – unlike abroad – certain prices don’t just follow the market. For example, the electricity market in Switzerland has not been liberalized for private customers. Therefore, we benefited from lower electricity prices until the end of 2022. Rents also do not respond directly to inflation. This puts Swiss households at ease.
Which goods are most affected?
Petroleum products, gas and automobile prices rose the most. But housing costs have also risen particularly sharply, mainly due to rising ancillary costs.
In addition, the prices of imported products increased much more than the prices of domestic products. Without the strong Swiss franc, import prices would have been significantly higher.
What can Switzerland do against inflation?
The Swiss National Bank (SNB) is fighting inflation by raising interest rates. It has already done this several times in 2022. Higher interest rates make investments more expensive and reduce demand. The trick: If interest rates are raised too much, the SNB will suffocate the economy. It’s a balancing act.
Consumers themselves cannot do much about inflation. You have no choice but to dig deeper into your pockets for the same products. Or buy less. This will be a boomerang for the sick Swiss economy.
“It’s important for people on a tight budget to receive full cost of living compensation through benefits or wage increases,” Straumann says.
Is the end of inflation near?
Although inflation has weakened again in recent months, there is no end in sight. At the beginning of the year, rents are also increasing rapidly. Also, heating will be significantly more expensive in 2023, increasing the side costs. Straumann expects further increases.
There’s a glimmer of hope, though: “The forecasts are no longer as bleak as they were in the summer of 2022,” says Straumann. While economic growth will slow significantly due to inflation, there will likely be no recession in 2023.
How is the Swiss economy doing?
As international comparison shows, the Swiss economy is not in bad shape. The strong Swiss franc plays an important role here.
Other currencies, such as the dollar and the euro, fell against the Swiss franc. Therefore, Switzerland, for example, can import oil or other products from the EU at lower prices. “The appreciation of the Swiss franc has reduced the rise in import prices,” Straumann says.