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

Even though the inflation rate is lower in Switzerland than in the eurozone, costs of some common consumer goods and commodities have risen.

Pasta up by 13 percent: How food and energy prices in Switzerland are rising
Many common products are now more expensive. Image by Alexa from Pixabay

Unlike neighbours France, Germany, Italy, and Austria, where the inflation rate hovers from over 6 to over 9 percent, Switzerland is doing much better on that score: its rate is currently about 3.5 percent.

What does this mean in terms of cost of living?

According to recent data from the Federal Statistical Office (OFS), which looks at which prices have increased the most, energy in general has registered the highest spike of all the consumer goods: 28 percent.

Within that category, fuel oil went up a whooping 86 percent, gas increased by 58 percent, petrol by 28 percent, and wood by 26 percent.

READ MORE: Swiss government confirms ‘sharp increase’ in electricity prices

As far as food is concerned, only four items registered a four-digit spike: pasta rose by 13 percent, cooking oil by 11 percent, and butter and coffee by 10 percent each.

Next are fish (9 percent); poultry, milk and yogurt (5 percent); bread and eggs (4 percent); and beef (3 percent).

Among non-foods, the price of toothpaste and other dental hygiene products rose by 12 percent, and clothing and shoes by 4 percent.

There is a bit of good news as well: the price of fresh vegetables dropped by 4.6 percent and that of shoes and clothing by 4 percent, according to FSO.

What’s ahead?

While energy prices will most likely remain high throughout the winter, the cost of other products depends on the evolution of inflationary trends. And there is no consensus on how that will turn out.

Claude Maurer chief economist at Credit Suisse predicted that Switzerland’s inflation rate will drop to 1.5 percent in 2023, and even as global economy  faces inflation-fuelled recession risks, “the situation remains positive for Switzerland”.

Another expert, however, Martin Eichler, chief economist of the economic research institute BAK Economics, said that “the next few months will be difficult” as Europe’s woes are expected to spill over to Switzerland as well.

“In many of Switzerland’s European trading partners, the toxic mix of energy shortages and massive gas and electricity price hikes are already having recessive effects”, Eichler said.

READ MORE: Cost of living: How you can beat Switzerland’s inflation blues?

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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