By Ed Frankl
Swiss consumer prices were in deflationary territory in May, a milestone that raises the prospect the Swiss National Bank will cut interest rates further later this month.
Annual inflation was down 0.1% compared with the same month of last year, slowing from the flat reading of April and matching a consensus of economists polled by The Wall Street Journal.
Switzerland last recorded deflation in March 2021. Lower-than-zero inflation readings were a regular staple of the early 2010s, which prompted the SNB to later cut rates below zero to halt a rapidly appreciating Swiss franc. The rate is also below the central bank's 0%-2% target range.
SNB Chairman Martin Schlegel has previously said that negative inflation was possible, and didn't rule out negative interest rates. However, he has said the bank wouldn't be guided by individual monthly inflation prints, but rather price stability to decide policy. The SNB expects inflation to average at 0.4% this year.
Investors are leaning toward a rate cut at SNB's meeting on June 19 that would bring its key interest rate to zero, though some think it could be a larger half-point cut to minus 0.25%. Policymakers have cut rates to the current 0.25% from 1.75% in early 2024, as inflation declined sharply from the 3.5% of mid-2022.
Annual inflation in May was pulled back by falling prices for imported products, partly as a result of declining energy prices and the rise in the franc against other currencies, as investors flocked to the safe-haven currency after the uncertainty prompted by U.S. trade policy.
Prices of transport, food and household goods also all fell compared with last year. However, core inflation, which excludes more volatile fresh food and energy, rose 0.5% on year.
Switzerland faces "mild deflation until mid-2026", Pantheon Macroeconomics senior Europe economist Melanie Debono said in a note to clients after the inflation print.
Given May's data, that is "enough for a jumbo cut" to bring the SNB to negative rates this month, she added.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
06-03-25 0410ET
