The comments are likely to firm pricing for a December hike, which would mark a turn from the lowest policy rate among major central banks and could lend support to the Swiss franc. With fuel and heating costs driving the jump, the oil price is now a direct input to Swiss rate expectations, tying SNB policy more closely to developments in the Middle East. A franc-supportive shift would also reduce one of the main channels through which the SNB has historically leaned against imported inflation. Traders will watch wage and rent data for the second-round effects Schlegel flagged as the trigger for a more forceful response.
—
Swiss inflation is still inside the SNB’s target, but the speed of the move has caught the bank’s attention, and its chairman wants markets to know it.
Summary:
- SNB Chairman Martin Schlegel said October’s 1.5% inflation was higher than even the central bank expected
- The rise, the highest in nearly three years, was driven mainly by fuel and heating costs, with clothing, food and footwear also up
- The SNB will watch closely for second-round effects on wages and rents, though none of significance have appeared yet
- Schlegel said the SNB won’t hesitate to adjust policy if price stability is at risk
- Economists have raised expectations for a hike from 0% at the December 10 meeting
Swiss National Bank Chairman Martin Schlegel said the central bank was caught off guard by the recent jump in Swiss inflation, and signalled it is ready to adjust policy if price stability comes under threat, according to Reuters, citing an interview with newspaper Handelszeitung published on Thursday.
Swiss consumer prices rose 1.5% in October from a year earlier, government data showed on Tuesday, the highest rate in nearly three years. Schlegel said the reading came in above even the SNB’s own expectations and that inflation had risen since the bank’s last policy assessment.
He attributed the increase mainly to higher fuel and heating costs, though prices for clothing, food and footwear also climbed during the month.
The SNB targets annual inflation of between 0% and 2%, so October’s reading remains inside its range. The concern is less the level than the direction and breadth of price pressures. Schlegel said the bank would monitor the situation closely, paying particular attention to whether higher prices begin feeding into other parts of the economy, such as wages and rents.
So far, he said, there had been no significant evidence of those so-called second-round effects, though he could not rule them out in future. He added that the SNB would not hesitate to change its monetary policy should price stability be put at risk.
The remarks carry weight because of where Swiss policy currently sits. The SNB’s policy rate of 0% is the lowest among major central banks, and the October data had already led economists to raise expectations that the bank could lift rates at its next meeting.
Schlegel’s comments stopped short of committing to a move, but his acknowledgement that inflation has surprised the bank, combined with an explicit readiness to act, is likely to reinforce that view. The SNB’s next policy decision is due on December 10.
This article was written by Eamonn Sheridan at investinglive.com.