Swiss Inflation Rate Drops by Most Since 1993 on Oil

By Joshua Gallu

Dec. 2 (Bloomberg) -- Switzerland’s inflation rate dropped the most in 15 years in November as the price of oil declined, giving the central bank more leeway to bolster the economy.

Consumer prices rose 1.5 percent from a year earlier after increasing 2.6 percent in October, the Federal Statistics Office in Neuchatel said today. That’s the biggest drop since November 1993. Economists forecast the rate to decline to 2 percent, according to the median of 15 estimates in a Bloomberg News survey. Prices fell 0.7 percent from the previous month.

Swiss inflation may slow further in the coming months after a 68 percent drop in oil prices since mid-July helped reduce energy costs. The Swiss National Bank has reduced interest rates faster than almost any other central bank to cushion the economy from a global recession and a worldwide financial crisis.

“The decline in oil prices is reducing inflation at a very rapid pace which is quite good news for consumers,” said Jan Amrit Poser, chief economist at Bank Sarasin in Zurich. “There’s some more of this slowing in the pipeline. It certainly helps vindicate the SNB’s rate cuts.”

This is the first time the pace of inflation in Switzerland has slowed to less than 2 percent, the central bank’s definition of price stability, since November 2007. Central banks from Washington to Beijing have reduced their benchmark rates as a liquidity crunch and falling commodity prices switched policy makers’ emphasis from price growth to the state of the economy.

Bank Crisis

Since the financial crisis worsened with the bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15 the Bank of England has reduced rates by 2 percentage points while the U.S. Federal Reserve and European Central Bank have cut them by 1 point.

Financial institutions worldwide have tallied almost $1 trillion in losses and writedowns since the U.S. housing slump triggered the credit crisis more than a year ago. UBS AG, Switzerland’s largest bank, got a $59.2 billion aid package last month after piling up the biggest losses of any European lender from the global financial turmoil.

The Swiss economy may have contracted in the third quarter and may shrink in 2009, SNB President Jean-Pierre Roth said. Switzerland’s leading economic indicators fell to the lowest level in more than five years in November and manufacturing contracted at the fastest pace since at least 1995.

“This is really the picture of a correction of the oil price peak in the summer, not a sign of a deflation horror scenario,” said Claude Maurer, an economist at Credit Suisse in Zurich.

With price increases abating, the SNB may have more room to loosen monetary policy to counter stalling growth. The SNB has cut 175 basis points off its main interest rate since the beginning of October. At 1 percent, Switzerland’s benchmark is among the lowest of major economies.

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