UBS Economics-European Economic Comment _Switzerland August inflation sta...-117629807

ab4 September 2025Global ResearchEuropean Economic CommentSwitzerland: August inflation stable, SNB to remain on holdSwiss inflation remained stable at 0.2% y/ySwiss inflation remained stable at 0.2% y/y (-0.1% m/m) in August, albeit only marginally so as the unrounded inflation rate was 0.15% y/y, down from 0.22% in July. This was in line with consensus but above UBSe of 0.1% y/y. July/August inflation is now averaging 10bp above the SNB's forecast for a quarterly average of 0.1% in Q3. This implies risks that the SNB will have to revise up its near-term forecast slightly at the upcoming meeting on 25 September (Figure 1Inflation and forecasts, % y/y). Core inflation (our definition of headline excluding energy and all food) edged down 0.1pp to 0.7% y/y, above our expectation of a larger decline to 0.5% y/y. The upside surprise was predominantly due to services including rents (suggesting a smaller pass-through from the reference rate cut, see below), transportation and package holidays (seasonal items) as well as more stable services. Goods inflation was only marginally above our expectations, while food and energy were weaker than we had expected. Domestic inflation fell slightly (by 0.1pp) to 0.6% y/y (-0.1% m/m) while imported inflation rose by 0.1pp to -1.3% y/y (-0.1% m/m). Looking ahead, we forecast September inflation to remain unchanged at 0.2% y/y before picking up in Q4 to an average of 0.4% y/y. Our annual forecasts are 0.2% for 2025 and 0.6% in 2026. The SNB's conditional forecast from June is for 0.2% in 2025 and 0.5% in 2026. Rent inflation above our expectationsAugust was a month with a quarterly rent update, which this time reflected the first impact of March's mortgage reference rate decline from 1.75% to 1.5%. Due to Swiss rental regulation, this rate is the main determinant for rents in existing contracts. It allowed eligible tenants to request a rent reduction of up to 3% in response to the decline in March, effective after the end of the notice period (usually three months). The pass-through of reference rate changes to rent inflation is difficult to estimate because it requires forecasts of four key variables for which little to no information is available publicly: (1) number of eligible contracts based on the old reference rate of 1.75%; (2) share of tenants making the reduction request; (3) timeline; (4) developments of rents in new contracts. See details in Switzerland: Revisiting rents and inflation. Based on our analysis of past reference rate declines (Figure 10Change in the CPI housing rent component after past reference rate declines, % m/m) and modelling of potential scenarios for these variables (Figure 12Parameters for scenario analysis), we had expected a 0% m/m change in today's print (compared to a historical average of around 0.3%). The actual outcome was higher (+0.2% m/m, 1.9% y/y), suggesting a smaller pass-through from the reference rate cut. Separately, the reference rate declined for a second tim