SNB Inflation Forecasts Under Pressure as CHF Strength Persists

The Swiss National Bank (SNB) is facing a challenge in balancing price stability and currency strength as inflation undershoots its forecast. According to Nomura's analysis, the Swiss Consumer Price Index (CPI) has consistently fallen short of the SNB's projections, with the latest readings showing a year-on-year increase of just 0.8% in the first quarter of 2025, compared to the SNB's projected 1.2%. This persistent undershoot suggests that domestic price pressures remain subdued, despite global inflationary trends.

Nomura attributes the undershoot to the stronger Swiss Franc, which has dampened import prices and weak domestic demand. The analysis highlights that the SNB's inflation forecasts have been overly optimistic, a pattern that could force the central bank to reconsider its policy stance. The undershoot has significant implications for the Swiss Franc (CHF), as lower inflation typically reduces the attractiveness of a currency.

However, the CHF's status as a safe-haven currency means it often strengthens during global uncertainty, which can further exacerbate the inflation undershoot by making imports cheaper. Nomura suggests that the SNB may need to intervene in foreign exchange markets to weaken the CHF, a move it has historically used to prevent excessive appreciation.