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‘Extraordinary measures’: What could Switzerland do to ease soaring cost of living?

Switzerland's National Council is starting to debate ways to counteract the inflation and increase the declining purchasing power of Switzerland’s consumers.

'Extraordinary measures': What could Switzerland do to ease soaring cost of living?
Swiss MPs debate emergency measures to cut the rising cost of living. Photo by Fabrice COFFRINI / AFP

Although, at 3.5 percent, Switzerland’s current inflation rate is much lower than across the eurozone (where it is about 9 percent), prices of many consumer goods and services have gone up and are expected to increase further.

This situation is prompting MPs to come up with measures to ease the inflation woes in a country whose economy is normally stable and robust.

“Extraordinary situations require extraordinary measures”, said Philipp Matthias Bregy, leader of the Center parliamentary group.

The MPs will focus mainly on three issues that are particularly prone to price hikes and are likely to affect Swiss consumers the most:

Old age pension (AVH / AVS)

Normally, these pensions are adjusted every two years, taking into account the development of wages and prices. But as salaries have hardly increased, while inflation is now higher than usual, pensioners risk losing their purchasing power in 2023. 

To avoid this situation, the centre-left alliance is pushing for full compensation of this price increase, by raising the minimum monthly pension by 30 or 40 francs.

The increase would not only benefit the 2.5 million pensioners in Switzerland, but also the beneficiaries of invalidity pensions and supplementary benefits.

READ MORE:  EXPLAINED: How does the Swiss pension system work – and how much will I receive?

Health costs

The costs for Switzerland’s healthcare system have been soaring in the past few years, and he current higher-than-normal inflation is making the situation worse.

Based on the information released by Santésuisse, an umbrella group for health insurance companies, an overall increase of around 4 percent for 2023 will be the norm.

Unfortunately for the consumers, premiums for compulsory health insurance will likely rise by an average of 5 percent in the fall, according to online price comparison site, Comparis.

And many people could even see their premiums soar by more than 10 percent in 2023 — the sharpest hike in premiums in 20 years.

The center-left alliance in the National Council is urging the government to contribute 30 percent of the expected hike, to help low and middle-income families shoulder the higher costs.

However, the right-wing faction in the parliament is opposing this move, proposing instead that health insurance premiums be fully deducted from direct federal tax; this would, however, favour mostly high-income individuals.

The government has already set a plan to cut the spiralling health costs, which includes coordinated care networks, faster and cheaper access to medicines, and electronic invoicing.

READ MORE: EXPLAINED: How Switzerland wants to cut soaring healthcare costs


With the prices of gas, electricity and fuel oil expected to soar considerably in 2023, political right and left have come up with their own proposals on how to mitigate these costs.

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

The right-wing Swiss People’s Party says the government should temporarily waive its share of the tax on mineral oils, worth more than 1 billion francs.

The Greens, on the other hand, are pursuing a different approach: they are asking for a temporary “energy supplement” for low-income households.

This supplement would benefit those who are affected by high energy prices the most.

What is the next step?

On Monday, the Council of States will decide on similar measures, including also the motion filed by Social Democrats asking for the government contribution of up to 260 francs per adult to ease the effect of the higher costs.

However, this motion is not expected to pass, experts predict.

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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