Swiss Inflation Holds Steady, Deflation Looms

The Swiss economy's inflation rate held steady in July at 0.4% year-over-year, meeting market expectations of the same rate. The monthly estimate even showed a 0.1% decline in headline inflation.

However, despite this benign inflation environment, there remains a risk that deflation could return to the Swiss economy. This would be a major concern for the SNB, which has already been struggling with the effects of a strong currency on its monetary policy.

The central bank cannot afford to rest on its laurels and must continue to push back against the strength of the Swiss franc in order to avoid falling back into deflation. Otherwise, it may be forced to implement unconventional monetary policies like NIRP and QE in the future.