ZURICH — With many countries around the world battling stubbornly high inflation, price increases have been much less dramatic in Switzerland, a small mountainous country in Western Europe.
In 2022, inflation in Switzerland reached the highest level in 29 years and amounted to three.5 percent. and the euro area (10.6%).
“I feel they feel it more abroad than here in Switzerland,” one shopper in Zurich told CNBC last month. “My mother lives in Germany, in Berlin, and he or she at all times tells me that [that] the whole lot has turn into so expensive.”
What aspects helped protect Switzerland from rampant inflation? CNBC investigates.
Prices ranging from high base
Switzerland is one in every of the richest countries in the world with approx GDP per capita which outperforms other major economies comparable to the United States, Japan and Germany.
It is also home to a few of the world’s wealthiest residents, with a mean wealth per adult of $696,604 – and a high cost of living.
The Swiss cities of Zurich and Geneva held regular Top 10 costliest cities in the world last yr, based on the Economist Intelligence Unit, despite the fact that inflation has pushed up the cost of living in other expensive places like Singapore and Recent York.
The Swiss cities of Zurich and Geneva remained in the rating of the costliest cities in the world in 2022.
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In consequence, Swiss residents are generally less affected by price increases as they spend a smaller proportion of their income on basic items comparable to food and accommodation than on discretionary items.
“Because persons are quite wealthy on average, the share of food in total household budgets is not as large as perhaps in other countries,” Tobias Straumann, a professor of economic history at the University of Zurich, told CNBC.
“In fact, we even have inequalities. But from a global perspective, I feel we’ve a really well-functioning social policy,” he added.
Stability of the Swiss franc
One more reason for the relative price stability in Switzerland is the strong Swiss franc.
The country’s currency continued to strengthen, appreciating approx reach parity with the euro in 2022. While many currencies fell against the strengthening US dollar, the Swiss franc held regular amid European volatility.
This is largely as a result of the currency’s safe-haven status or defense asset. The Swiss franc is strongly supported by large reserves of gold, bonds and financial assets that help the Swiss National Bank to make sure the stability of the currency in periods of instability.
While many currencies fell against the strengthening US dollar in 2022, the Swiss franc held regular amid European volatility.
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It is also good for Switzerland, an economy heavily depending on international trade.
Switzerland imports about $302 billion value of products and services annually, most of which come from neighboring EU countries. A stronger Swiss franc provides an efficient discount on these imports.
Meanwhile, Switzerland exports nearly $305 billion per yr – largely consisting of upper value goods and services comparable to watches and pharmaceuticalsthat are less sensitive to cost fluctuations than low-margin mass-produced goods.
A reliable source of energy
Switzerland is also less exposed to a few of the external aspects that pushed prices up in 2022, comparable to Russia’s war with Ukraine.
Switzerland, with its mountainous topography and greater than 1,500 lakes, is less depending on oil and gas imports than a few of its European neighbors, and hydroelectricity plays a vital role in its source of energy.
Swiss energy suppliers too mostly public propertywhich implies they’re less exposed to extreme market fluctuations financial safety netwhile being subject to more severe ones price regulation.
An aerial view shows the Vieux-Emosson dams and the Emosson dam, a part of the Nant de Drance pumped-storage power station above Finhaut in western Switzerland. The country relies on domestic hydropower production in the face of a wider energy crisis in Europe triggered by Russia’s invasion of Ukraine.
Fabrice Coffrini | AFP | Getty’s paintings
At the end of 2022, energy prices in Switzerland increased by approx rate 16.2% — below levels of major peer countries comparable to Germany (25%), the Netherlands (30%), the UK (52.3%) and Italy (64.7%). The national energy regulator now expects prices to extend by approx one other 27% in 2023and the average household energy bill was 1,215 Swiss francs ($1,238).
Jean-Claude Huber, manager of the Hotel Piz Buin Klosters in eastern Switzerland, said standardizing long-term energy contracts has helped firms like his protect themselves from major price hikes this yr.
The dynamic pricing structure of the four-star hotel also implies that Huber has been capable of pass on price increases of around 5-10% to customers without hurting demand.
“We will play with stakes rather a lot greater than for those who had fixed stakes all the time and that helps us rather a lot. I’m sure costs will probably be higher than before, but turnover must also be higher,” said Huber.
Price control of products and services
Along with energy, Switzerland also has stringent regulations price control of products and serviceswhich also makes them less vulnerable to inflationary fluctuations.
Of the core products used to measure inflation in the euro area, incl food, housing and transportalmost a 3rd (30%) are subject to cost regulation in Switzerland – greater than in every other European country.
The costs of products and services are tightly regulated in Switzerland, which makes them less at risk of wider market fluctuations
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Swiss food prices rose by approx annual rate 4.0% last December, compared with 11.9% in the US, 16.9% in the UK and 19.8% in Germany.
High tariffs on imports of certain agricultural products it also implies that domestically produced foods, comparable to milk and cheese, enjoy preferential prices and are less at risk of changes in global food markets. This in turn helped boost the country’s economy.
“We try to purchase as many Swiss as possible, but even regional ones,” said Huber. “Long-term, you wish the local industry to be up and running.”
Inflation to fall below 2% by 2024
This doesn’t mean that Swiss consumers have been completely proof against the recent price increases. Locals who spoke to CNBC noted a relative increase in rental prices for housing, in addition to some food items.
“Whenever you’re a tenant… I feel that could be some extent that goes up a bit,” one buyer told CNBC.
The Swiss franc is strongly supported by large reserves of gold, bonds and financial assets that help the Swiss National Bank to make sure the stability of the currency in periods of instability.
Bloomberg Creative Photos | Getty’s paintings
Nonetheless, the Swiss National Bank said in December that it sees inflation is falling to a mean of two.4% in 2023 before reaching 1.8% in 2024.
This may be below the bank’s goal of two%. Still, economists say it’s unlikely to harm the economy.
“Even when we’ve something like a recession scenario, people still are available in, and that obviously stabilizes demand,” Straumann said, referring to the free movement of individuals in Europe. “I expect the same this yr, 2023, and doubtless 2024 as well.”
What other countries can learn from Switzerland
Switzerland’s unique economic landscape has been shaped for many years and is difficult to duplicate in wholesale for many countries. For instance, its exchange rate policy couldn’t be mirrored in the wider Eurozone, making an allowance for the different economies.
Nonetheless, Straumann said the nationalization of the Swiss energy supply is a vital lesson for other countries, especially those countries in Europe which have undergone extensive privatization and are actually paying the price.
“In the medium to short term, it was a excellent idea,” he said of the privatization of energy supplies. “But he isn’t very resilient and it’s haunting them now.”
“At the time, many individuals thought the Swiss were too conservative,” he added. “But on reflection, I’d say it was a excellent decision.”