Swiss Consumer-Price Inflation Slows as Oil Declines

By Joshua Gallu

Nov. 4 (Bloomberg) -- Swiss inflation slowed in October as the price of oil dropped.

Consumer prices rose 2.6 percent from a year earlier after increasing 2.9 percent in September, the Federal Statistics Office in Neuchatel said today. Economists forecast the rate to drop to 2.5 percent, according to the median of 18 estimates in a Bloomberg News survey. Prices rose 0.5 percent from the previous month.

Swiss households may see price increases ease further in the coming months as a 55 percent drop in oil prices since mid- July helps reduce energy costs. With inflation pressures abating, the Swiss central bank may have more room to lower interest rates amid faltering growth.

``It appears the inflationary trend peaked in July and now we'll see the rate continue to drop in the coming months,'' said David Marmet, an economist at Zuercher Kantonalbank in Zurich. ``There aren't any signs that second-round effects took hold. Inflation doesn't present a big danger going forward.''

Switzerland's leading economic indicators fell to the lowest level in more than five years in October. As a global slowdown hurts exports and financial market turmoil hits banks' earnings, the Swiss economy may contract in the coming two quarters, the Zurich-based KOF economic research institute said Sept. 28.

``Taking into account that inflation in Switzerland traditionally starts at a very subdued level, the discussions about potentially deflationary developments are already looming around the corner,'' Reto Huenerwadel, senior economist at UBS AG in Zurich, said in an Oct. 31 research note.

At 2.50 percent, Switzerland's interest rate is the third- lowest among major economies, after Japan's 0.3 percent and the U.S.'s 1 percent. The Swiss National Bank holds its next monetary-policy meeting in December.

To contact the reporters on this story: Joshua Gallu in Zurich at jgallu@bloomberg.net