Switzerland, a major inflation saver in Europe

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Switzerland, large savings from inflation in Europe

In October, the inflation rate was only 3% in the small Alpine country, 3, 5 times less than in Germany.

A shopping street in the center of Sion, Switzerland.

In the early morning, when the sun is just beginning to shape the shape of the mountains overlooking the village of Leytron, the day of the baker Albert Michellod is already well underway.

These days, this trader has in mind the same concern as his colleagues elsewhere in Europe: the impact of rising prices on his production.

All our raw materials are increasing. This means that, just yesterday, the yeast merchant told me that in November there is a 15 Swiss franc increase on yeast. It had already started with flour and butter, explains Albert Michellod.

Swiss baker Albert Michellod sees the price increase of everything he buys to produce bread and pastries.

For this entrepreneur, whose business depends on energy-intensive ovens and freezers, the renegotiation of his energy contract next year is also a source of concern.

In his bakery, which makes also used as a coffee shop, the rise in prices invites itself into conversations. But César, a client, puts things into perspective when he compares the situation in Switzerland to that of neighboring countries. We're still better, I think.

“I have family in Germany, and it's a bit more difficult now.

— César, a Swiss worker

And for good reason, the inflation rate in one year for the month of October was 10.4% in Germany. For the euro zone as a whole, the Eurostat institute predicts a rate of 10.7% for the same period.

Switzerland, with its inflation which has fallen by 3, 3% to 3% between September and October, is therefore an exception on the continent.

According to Vincent Riesen, Director General of the Valais Chamber of Commerce and Industry, the uniqueness of his small country can be explained, among other things, by the strength of its currency, the value of which has increased in recent months.

The Swiss franc has a rate almost identical to that of the euro, which favors Switzerland in the purchase of imported products, on which its economy depends greatly.

As soon as the situation becomes tense economically and politically, we feel that the franc automatically becomes a safe haven, attracts foreign capital and that increases its value, explains the economist, who also underlines the impact of the monetary and fiscal policies of his country.

The Swiss franc today has almost the same value as the euro.

“As we have a lot of imports in this country, since we ourselves do not produce a lot of resources, automatically, all the prices of raw materials, our terms of trade are reinforced. »

— Vincent Riesen, Managing Director of the Valais Chamber of Commerce and Industry

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The strength of the franc thus benefits the Swiss when they have to obtain supplies on the world energy markets, where prices have experienced significant increases.

In terms of energy, Switzerland also remains much less dependent on gas imports than other European countries, which partly spares it the impacts of the increase in the value of this resource since the start of the Russian invasion of Ukraine.

According to Swiss authorities, in 2020, 66% of the electricity consumed in the country depended on hydroelectric power and 20% came from nuclear energy.

A basin in the Swiss Alps, used in the process of generating hydroelectricity.

Even if, in terms of inflation, the situation of the Alpine country is much more enviable than that of its European neighbors, the rise in consumer prices is weighing on the morale of Swiss.

Every quarter, the Bern authorities measure households' assessments and expectations of the economic situation, with what is called the consumer sentiment index.

Or, in October , this index has reached its lowest level since this type of survey was conducted in 1972.

Vincent Riesen, from the Valais Chamber of Commerce and Industry, explains the limited inflation in Switzerland by the high rate of the country's currency.

Vincent Riesen, from the Valais Chamber of Commerce and Industry, reminds us that not all Swiss are rich.

We have also a lower middle class that sometimes struggles to make ends meet. And obviously, for this type of household, the shock of inflation is quite hard, he specifies.

Thus, even if wages are higher than elsewhere, in a country where the cost of living is 40% higher than in France, even a moderate price increase can have significant consequences.

For the baker Albert Michellod, who buys a lot of his products in Switzerland and who therefore cannot benefit from the strength of the currency, the phenomenon is worrying. Although the rate is limited, he expects to sooner or later have to imitate other European traders, and pass on the impacts of inflation to the prices of his products.

We are very close to our customers, it always hurts to raise prices, says Albert Michellod.

Even if their reality today seems far removed from that Germans or the British, the Swiss may not be able to fully escape the inflationary winds blowing over the European continent.

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