Official inflation numbers don't paint the real picture of price gains in Switzerland. Former UBS chief economist Klaus Wellershoff explains why.
Former UBS chief economist Klaus Wellershoff characteristically puts his finger on a sore spot, and the current ailment is the official Swiss inflation figures on inflation are being overtaken by reality.
He is familiar with the uneasy feeling currently creeping up on Swiss consumers. «More and more people are noticing with surprise that the perceived rates of price increases do not seem to correspond with the official statistics,» the former UBS chief economist wrote in a report published Thursday.
The Swiss Federal Statistical Office (FSO) recently reported annual inflation is running at 3.4 percent, and therefore much lower than the recent 9.1 percent in the EU, but when peering into wallets, things look rather different is the conclusion of the founder Wellershoff & Partners consulting firm.
Central Bankers Out of Touch
Changing perspective illustrates his point. Wellershof applied the methods of the Austrian statistical office to the price survey of the Swiss FSO, where Austrians calculate a separate inflation rate for the direct expenditures relevant to a basket of household goods. Based on that, Wellershoff & Partners calculated an analogous figure for Switzerland of 5.9 percent, almost double the official figure.
The Swiss National Bank (SNB), like some other central banks, pursues an inflation target which for Switzerland is a range of 0 to 2 percent annual inflation. SNB President Thomas Jordan recently acknowledged the country is well beyond this range and inflation could become stubbornly entrenched. On September 22, the SNB is expected to take another interest rate step to counter inflation, which would take it out of negative territory. The European Central Bank (ECB) raised its benchmark rate today by 75 basis points, as expected, to 1,25 percent.
Delayed Effects
Wellershoff also fears that inflation will take hold, with prices for gasoline and diesel still particularly inflationary, he writes. Other goods and services such as coffee, dental care products, pasta, and olive oil also have inflation rates in the range of 10 percent. The fact actual reported inflation is still well below these values is because Switzerland has a high proportion of administered prices.
For example, electricity and gas prices are not passed on to households directly as a result of market price changes, and rents of existing tenancies are also very restrictively regulated. As a result, there are delayed effects on the respective price developments.
But when the full adjustment of electricity and gas prices takes place at the beginning of the year, inflation rates in Switzerland will be even higher, he expects.
«Thus, it seems foreseeable that the Swiss inflation trend will pick up further in the coming months», he concludes
