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EXPLAINED: The groups most affected by inflation in Switzerland

An increasing number of people in Switzerland are feeling the effects of the rising cost of living, as prices for many goods continue to soar.

EXPLAINED: The groups most affected by inflation in Switzerland
The more you use your car, the more affected you'll be by inflation. Photo: Pixabay

The inflation rate in Switzerland – 3.4 percent – is currently significantly lower than elsewhere in Europe, which has average inflation of 8.9 percent across the eurozone countries.

Reasons for this include a strong Swiss currency (when compared with the euro), as well as less reliance on Russian energy sources. Data from the International Energy Agency shows that less than 1 percent of the electricity consumed in Switzerland comes from oil and natural gas, while 58 percent originates from renewable sources or nuclear power.

“By comparison, in the European Union, over one-fifth of the electricity is produced with natural gas and over one eighth with coal”, the banks’ analysts found.

READ MORE: EXPLAINED: Why Switzerland’s inflation rate has stayed low compared to elsewhere

However, even this relatively low inflation has impacted on prices for everyday items and bills.

Figures from the Federal Statistical Office indicate that, in a span of one year, the price of fuel oil has gone up by 76 percent and that of gas by 56 percent.

In addition, health insurance premiums are also likely to rise in 2023, up to 10 percent more, according to projections.

However, “the inflation felt by consumers in Switzerland is much higher than that shown in official figures”, according to a report by RTS public broadcaster. “And if these increases have not yet affected most people, it is only a matter of time” before they will.

Who is most vulnerable to inflation?

Unsurprisingly low-income households suffer the most.

But a recent study by Comparis consumer service and KOF Economic Centre shows that couples under 65 years of age without children represent the category for which inflation has been felt the most, with higher fuel prices particularly affecting motorists.

On the other hand, single pensioners — people aged 65 and over living alone — “feel the cost of inflation the least in their daily lives”, the study found. That may be because they don’t have to commute to work so are less impacted by fuel price rises.

As far as regions are concerned, Ticino feels the crunch more than other canons.

The reason: “It is where the density of individual cars is the highest”, the study reported.

What’s next?

Beyond the current trends, it is difficult to accurately predict whether more households and individuals will be in a precarious financial position if the current situation deteriorates.

The hope is it will not become as dire as it was during the first wave of the coronavirus pandemic in the spring of 2020, when thousands of people used to queue up each Saturday in Geneva for free food.

READ MORE : Coronavirus crisis lays bare poverty in Geneva as thousands queue for food

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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