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Investing.com -- According to Capital Economics, Swiss inflation is expected to remain very low this year.
The decline in inflation in January was slightly smaller than expected, which might reduce the chance of Switzerland entering into deflation later in 2022.
Despite this, Capital Economics still anticipates that the Swiss National Bank (SNB) will likely lower rates by an additional 25 basis points in March.
The headline Consumer Price Index (CPI) inflation rate dropped from 0.6% in December to 0.4% in January, which matched the consensus forecast.
The main factor for this decrease was a significant drop in electricity inflation, which moved from 17.8% to -8.7%, resulting in a roughly 0.5 percentage point reduction in the headline rate.
However, the SNB might be more interested in the rebound in private services inflation excluding rents, which increased from 1.1% in December to 1.5% in January.
This was primarily due to an increase in transport services inflation, indicating that underlying inflationary pressures might be stronger than initially anticipated by both Capital Economics and likely the SNB.
While the data from today slightly reduces the possibility of the SNB implementing a 25 basis point cut to 0.25% in March, it still remains the most probable outcome.
Inflation is expected to continue declining this year, largely due to lower rent inflation. Furthermore, inflation is much closer to the lower limit than the upper limit of the SNB’s 0-2% definition for price stability, suggesting that the SNB might decide to take a cautious approach and ease policy in March.
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