Swiss consumer prices show deflation risks fading

Swiss consumer price inflation accelerated in March, boosted by rising energy costs, showing that deflation risks are fading one year after the central bank launched its drastic policy to avert a spiral of falling prices. The price rise added to views that the Swiss National Bank was likely to hike interest rates later this year and to end its currency interventions, despite last Thursday's intervention episode that knocked the Swiss franc off its record highs.

Swiss consumer prices rose 0.1 per cent compared to February and were 1.4 per cent higher than one year ago, in line with forecasts in a Reuters poll, as costs for fuel and heating oil rose, Federal Statistics Office data showed on Tuesday.

Last March, Swiss consumer prices began their longest phase of year-on-year declines in 50 years and the SNB took steps including currency interventions to stem a rise in the franc in order to battle the risk of deflation.

But the Swiss economy emerged less bruised than its European neighbours from a deep recession last year and recent economic data point to a solid, broad-based recovery.

"With the exception of the Swiss franc's exchange rate, everything is pointing towards a normalisation of interest rates sooner rather than later," said Credit Suisse analyst Fabian Heller. "We still see them hiking in September."

Interest rate futures price in an increase by December and give a hike in September a significant probability.

Some analysts have argued that the strength of the franc - which hit a new all-time high against the euro near 1.4150 last week - may allow the central bank to hike rates later.

The low core inflation - stripping out volatile components such as prices for energy or food - of just 0.5 per cent, showed there was little need for immediate action from the central bank, analysts said.

"I don't see an acute deflationary risk, but I don't think there is inflationary pressure either," said Julius Baer economist Janwillem Acket.