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COST OF LIVING

Seven products that are becoming more expensive in Switzerland

Covid and the war in Ukraine, coupled with rising inflation, made Switzerland even more expensive than it already was before. These are some of the goods you can expect to pay more for.

Furniture like this nice couch will be more expensive in Switzerland.Photo by Phillip Goldsberry on Unsplash Photo by Phillip Goldsberry on Unsplash
Furniture like this nice couch will be more expensive in Switzerland.Photo by Phillip Goldsberry on Unsplash Photo by Phillip Goldsberry on Unsplash

The good news — if we can call it that — is that inflation rate in Switzerland, which stood at 2.6 percent in April, is significantly lower than in neighbouring France (5.4 percent) and Germany (7.8 percent), as well as throughout much of Europe.

However, Swiss consumers are already feeling the increase in prices of many common purchases.

News platform Watson has listed seven goods and services that now cost more, basing its analysis on the national index of consumer prices (LIK), which measures the inflation of consumer goods in Switzerland.

Among the products that are now more expensive are:

Raw materials

Energy prices, including petrol, oil and gas, have increased in recent weeks. “We are currently paying around 77 percent more for heating oil compared to January 2019”, according to Watson.

A litre of petrol currently costs 2.05 francs, versus 1.60 francs in August 2021.

“A recovery is currently not in sight”, Watson added.

READ MORE: How Covid, Ukraine and energy costs are changing Swiss spending habits

Wood

Wood prices started to go up already during the Covid pandemic in 2020, rising by staggering  500 percent from May 2020 to May 2021.

One of the reasons is that wood pellets can also be used for heating.

“The war has not only made the raw material more expensive, but also the production of the pellets”, according to Andreas Keel, Managing Director of Holzenergie Schweiz, who added that in October a tonne of pellets cost 280 francs, and in January it rose to 360 francs.

What certainly doesn’t help matters is that Russia is one of the world’s largest wood exporters and the sanctions currently in place against this country are exacerbating this shortage.

READ MORE: Switzerland extends sanctions on Russian assets

Furniture

If you are looking for a new sofa, table or another piece of furniture, now is not a good time to purchase them, as their cost has risen by around 15 percent. One reason, as stated above, is the higher price of wood, but there are other contributing factors as well.

“The Swedish furnishing giant Ikea increased its prices by an average of 9 percent at the end of 2021. With a market share of 11 percent, Ikea is one of the big players in Switzerland”, Watson said.

Food

While food amounts to only 6.3 percent of an average household budget, it is probably the most important, as nobody can live without it.

The main reason for the increase is that Ukraine exports foodstuffs such as grain, which affects not only prices of products like baked goods and pasta, but also the cost of animal feed — the latter being essential for the production meat and dairy.

Clothing

Clothing prices typically increase in April / May, but this year they rose more than usual.

The war and Covid-related delivery issues are main factors, but the worst is yet to come, according to Andreas Bartmann, vice-president of  the industry association of textile retailers.

“In the fall, [price hikes] will hit us massively,” he said.

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

Transportation

“Anyone who wants to buy a new car currently has to pay around 10 percent more than in January 2019”, Watson said.

And this increase is likely to continue, mainly due to higher costs of  raw materials and general delivery problems.

Opting for the used-car market is not a solution either, Watson noted, as “the prices there rose even more significantly than for new cars due to the excess demand”.

You could opt for a new motorcycle or bike, but there too prices are expected to climb — also due to shortage of raw materials and delivery bottlenecks.

Travel

Now that Covid restrictions have been lifted in most countries, foreign travel may remain inaccessible for many people anyway,  because it became more expensive.

One major reason is that, with fuel now costing more, airlines are increasing the price of tickets.

By the same token, the price of petrol could make driving to your holiday destination costlier as well.

Your best bet may be to just stay home. It will feel like 2020 all over again, but without the masks.

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COST OF LIVING

EXPLAINED: What the steep rise in Swiss interest rates could mean for you

The Swiss National Bank (SNB) raised the key interest rate by 0.75 percentage points, putting it back in positive territory at 0.5 percent.

EXPLAINED: What the steep rise in Swiss interest rates could mean for you

As announced by Switzerland’s central bank on Thursday, the rate change applies from Friday, September 23rd.

“The bank’s aim is to counter the renewed rise in inflationary pressure and the spread of inflation to goods and services that have so far been less affected”, according to SNB.

The SNB has not said how long the current rate will be in place, but noted that “it cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term”.

READ MORE: Swiss central bank announces big rate hike in inflation fight

Inflation rate in Switzerland currently stands at 3.5 percent. While it is much lower than in the eurozone, where it exceeds 9.1 percent, it is still higher than its usual rate of below 1 percent.

Why has the SNB raised the interest rate for the first time since 2015?

For the same reason that other central banks have done so, including the European Central Bank and the Federal Reserve in the US: price stability

In general, central banks see increasing interest rates as a response to rising inflation: higher rates help reduce the overall level of demand and, subsequently, also the upward pressure on prices.

Whether this strategy will work is another matter.

The SNB rate hikes will “have a fundamentally dampening effect on inflation”, Felix Oeschger, analyst at Moneyland price comparison platform, told The Local.

“However, it is far from clear whether these alone will be enough to curb inflation”, he added.

One for the reasons for this uncertainty, Oeschger said, is that “the energy crisis and the high prices of some agricultural commodities, such as wheat, are a result of the Ukraine war. These prices are more difficult to influence with key interest rate increases”.

In its inflation forecast, the SNB predicted the inflation will drop to 2.4 percent in 2023.

But “considering that the SNB has continuously revised its inflation forecasts upward since December 2021, it is quite conceivable that inflation in Switzerland will continue to rise or at least remain high”, Oeschger pointed out.

READ MORE: EXPLAINED: The groups most affected by inflation in Switzerland

Will the Swiss consumers benefit (or not) from the higher interest rates?

It depends on what you are looking to buy.

If you are planning to buy big-ticket items that are usually purchased with credit — like homes — then you may have to dig deeper into your pockets.

If you already have a fixed-rate mortgage, then you are safe from rate increases for the term of your mortgage.

But for new buyers or those with variable-rate mortagages, things may be more problematic.

“It is not excluded that mortgage interest rates will reach 3 to 4 percent next year”, from the current 2.6 to 3.1 percent, according to Donato Scognamiglio, director of real estate platform Iazi.

What about rents?

Tenants may not be better off than homeowners.

Many have already received notices of higher rents to compensate for increased costs of energy.

Now another charge could be added as well, though probably not immediately.

“Rents will go up, but only when the reference interest rate itself is raised”, Scognamiglio said.

The benchmark interest rate is the average of all mortgage interest rates. If the reference rate increases by 0.25%, tenants will have to pay 3 percent more rent. “I expect this to happen next year”, he said.

But it is not all bad news; higher interest rates will yield some benefits as well.

For instance, if you have certain types of investments, you may see more money coming in.

“I expect yields on fixed-income financial products such as bonds to continue to rise”,  Oeschger said.

“In the case of medium-term notes issued by Swiss banks, we have already seen significant increases since the beginning of the year”, he added.

As for savings accounts, however, “the banks have so far been very hesitant to raise interest rates, but if monetary policy tightens further, we can expect interest rates to rise slightly here as well”.

Generally speaking, what will become cheaper and more expensive for consumers?

The bad news here is that everything that has to do with energy, even indirectly, will become more expensive.

This includes “heating, transport costs, electricity and also food”, another Moneyland expert, Ralf Beyeler told The Local.

READ MORE: Pasta up by 13 percent: How food and energy prices in Switzerland are rising

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