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COST OF LIVING

EXPLAINED: Why Switzerland has escaped the global spike in costs of living

Across the globe, inflation has hit its highest rate for decades in several countries, whereas Switzerland has been largely spared. Why?

Groceries are getting more expensive in Switzerland - but the increase is lower than elsewhere. Photo by Maria Lin Kim on Unsplash
Groceries are getting more expensive in Switzerland - but the increase is lower than elsewhere. Photo by Maria Lin Kim on Unsplash

In March 2022, Switzerland recorded an inflation rate of 2.4 percent. While this is no doubt concerning by Swiss historical standards and is the highest level for a decade, it pales in comparison with inflation rates elsewhere. 

Spain’s rate of 9.8 percent inflation is the highest for 37 years

Germany is currently struggling under an inflation rate of 7.3 percent, which is the highest since reunification. 

Denmark has seen an increase of 4.2 percent, while in the US, inflation is currently at 7.9 percent.

Why is inflation so high? 

The factors driving inflation across the globe are largely similar: the fallout from the Covid pandemic and Russia’s invasion of Ukraine. 

Uncertainty surrounding the Covid pandemic since the first lockdowns were imposed in early 2020 led to problematic economic consequences, which in turn led to inflation. 

More recently, Russia’s invasion of Ukraine drove up prices of raw materials, fuelling inflation and higher cost of consumer goods.

READ MORE: How Covid, inflation and the Ukraine invasion has made Switzerland more expensive

Why is Switzerland spared? 

There are a variety of factors why Switzerland is insulated from the global inflation wave. 

Economist Thomas Jordan told Swiss media the franc remains a safe haven currency and as long as it remains strong, imports will remain cheap – which removes pressure on inflation. 

As Switzerland relies on imports much more than many countries, including the United States and Germany, lower costs of imports has a cooling effect on inflation. 

Geissbühler says Switzerland remains “in an absolutely comfortable position” when it comes to inflation. 

Writing in the NZZ, Thomas Schürpf agreed that the strong Swiss franc helps boost purchasing power. 

“This makes imports cheaper across the board. The strong Swiss franc helps the Swiss to have high purchasing power internationally. And imported goods are the main drivers of inflation.”

Parity with the euro: Why the Swiss franc is now so strong

High Swiss wages also means that the percentage of consumer spending allocated to fuels and heating material is just 3.03 percent, compared to 7.11 percent in Germany and 4.97 percent in the US. 

Economiesuisse also points out that while energy costs are driving inflation elsewhere, Switzerland’s energy efficiency means it produces goods with half the energy needed in Germany, the United States or elsewhere abroad.  

Schürpf also identifies another major reason is the high taxes on fossil fuels in Switzerland, which results in lower percentage price increases in the instance of global oil and gas shocks than in countries with lower taxes. 

Is there anything I can do? 

That said, with the ongoing impact of the pandemic uncertain, there are some tried and tested measures to avoid the negative impacts of inflation. 

When inflation is high, simply sitting on large cash reserves will see that slowly whittled away. 

There are several investment options you could consider, including gold – always a favourite in Switzerland – securities and the Stockmarket, real estate or even newer ideas such as cryptocurrency. 

These are outlined in the following report. 

READ MORE: How to protect your savings against inflation in Switzerland

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NATO

Biden accidentally congratulates Switzerland on joining NATO

NATO's latest expansion momentarily got really interesting with even Switzerland about to join -- at least for a second in a Joe Biden verbal slip Thursday.

Biden accidentally congratulates Switzerland on joining NATO

At a press conference marking the end of the NATO summit in Madrid, the US president recounted the behind-the-scenes talks putting militarily non-aligned Finland and Sweden on track to join the Western alliance in a major rebuff to Russia.

Except he misspoke, saying there was a plan to call the leader of famously neutral Switzerland about joining. Quickly realising his stumble, Biden said: “Switzerland, my goodness.”

“I’m getting really anxious here about expanding NATO,” he joked, before adding for the record: “Sweden.”

Biden, 79, has long been known for his verbal gaffes during a political career spanning half a century.

How much is too much? Understanding Switzerland’s cooperation with NATO

Why isn’t Switzerland in NATO?

NATO, an acronym for the North Atlantic Treaty Organisation, was created in 1949 as a response to the militarisation and expansion of the Soviet Union.

Two years earlier, a period known as the Cold War began — a state of conflict between western countries and the Soviet bloc that lasted for more than four decades.

NATO was formed in that geopolitical context to provide collective security against the rising threat posed by the Soviet Union.

Switzerland’s reason for not joining the military alliance at that time or since then was that such a move would be incompatible with the country’s longstanding tradition of neutrality — the same tradition that had kept Switzerland from joining the United Nations until 2002, and is still keeping it from joining the European Union.

EXPLAINED: Why isn’t Switzerland in NATO?

Specifically, what has kept Switzerland from becoming a member is the Article 5 of the NATO treaty — the principal of collective defence, implying that an attack on one member is viewed as an attack on all.

Switzerland’s principle of “armed neutrality” means the country can defend itself against an invasion, but it can’t engage militarily to defend other nations in an armed conflict.

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