International locations are struggling to possess inflation, nonetheless no longer Switzerland. Here is why

Rising costs and higher interestrates. It’s hard to talk about the economy these days withoutthinking of one word: Inflation. But as many countries across the globe battlesky-high inflation, here in Switzerland, a small mountainous nation in western Europe,the rise in prices has been far less dramatic. Have you felt the effect of pricerises and inflation over the past year? Um, not that much to be honest. It’s been all right. Most of the things, it’s OK. You think Switzerland’s somehow got itmore right than maybe other places?.

I think so. Inflation in Switzerland hita 29-yearhigh of 3.5% in 2022. While still high by Swiss standards,it is wellbelow the double-digit inflation rates in other advanced economieslike the U.S., U.K. and euro zone. So, what is it about the Swiss economy thatmeans it has largely avoided rampant inflation, and what can other countries learn from it? There are multiple parts toSwitzerland’sinflationary story. For starters, prices in the country arealreadybeginning from a high base. Switzerland is one of the world’swealthiestcountries, with a GDPper capita.

Outstripping that of other majoreconomieslike the U.S., Japan and Germany. It is also home to some of therichest citizens in the world, with an average wealth of nearly $700,000 peradult — and a steep cost-of-living to match. In 2022, the Swiss cities of Zurichand Geneva held steady among the world’s 10 most expensive cities,even as inflation pushed up living costs in other pricey places likeSingapore, New York and Tel Aviv. Tobias Straumann is a professor of modern andeconomic history at the University of Zurich. It’s because people are on average quite rich, theshare of food in the overall budget of households is not as big as maybe in other countries.We also have inequality, of course.

But, from an international perspective, we haveIthink a very well-functioning social policy. As a result, Swiss citizens are generallyless impacted by price hikes because they tend to spend a lower proportion of theirincome on essentials versus discretionary items such as vacations and hobbies, whichthey can scale back when prices go up. Another reason for Switzerland’s relative pricestability stems from the strong Swiss franc. The country’s currency hasalso steadily strengthened, rising in value against theeuro to reach parity in 2022. And while the U.S. dollar strengthenedagainst many major currencies in 2022, the Swiss franc held steadyamid volatility in Europe.

That’s largely due to its status as a“safe haven” currency or defensive asset. The Swiss franc is heavily backed by largereserve of gold, bonds and financial assets, which help the Swiss National Bank ensure thecurrency’s stability during times of volatility. It’s always been a safe havencurrency in times of crisis, and it actually started about 100 years ago,after World War I. And of course, with the war and all that, and Covid,the Swiss franc again was in much demand. The strength of its currencyis also beneficialfor its economy, which is heavilydependenton international trade. In 2020, Switzerland imported around$300 billion worth of goods and services,.

The majority of which come fromneighboring EU countries. A stronger Swiss franc therefore providesan effective discount on those imports. In the same year, Switzerland exporteda near equal amount. But those tended to be higher value goods and services,such as watches and pharmaceuticals, which are less susceptible to price fluctuationsthan low margin, mass produced commodities. Switzerland is also less exposed to somevolatile external factors that pushed prices higher in 2022, such as soaring oil andgas prices caused by Russia’s war in Ukraine. Home to around 1,500 lakesand numerous rivers, hydropower plays a key role inSwitzerland’s energy production.

Hydroelectricity accounts for more thanatenth of Switzerland’s energy consumption, making the country less reliant on oil and gasimports than some of its European neighbors. Swiss energy suppliers arealso largely publicly owned, which means they are less exposedto extreme market volatility through financial safety nets but are alsosubject to more strict pricing regulation. In Switzerland, we have a lot of state control ofprices, which is kind of strange because you think of Switzerland as a very liberal country.Butin the crucial areas, like energy and rent, you have a lot of public controls. That means thattheinflation rate is stretched over time. It doesn’t mean that there’s no inflation at all, but you canavoid that you have a certain short-term effect.

At the end of 2022, energy prices in Switzerlandrose at a rate of 16.2%; below the levels faced by major peers like Germany,the Netherlands, the U.K. and Italy. Switzerland’s energy regulator now expectsprices to rise by a further 27% in 2023, with the typical annual householdenergy bill topping 1,215 Swiss francs. Jean-Claude Huber is the manager ofHotel Piz BuinKlosters in the east of Switzerland. Hesaid standardizationof long-term energycontracts have sheltered businesseslike his from rising costs in 2023. This year, I’m not worried becausethe contractis still the end of the year. Afterwards, it will go up by multiple of five,probably,so that’s really a big increase.

But, OK, we’ll have to manage that. The four-star hotel’s dynamic pricingstructure also means that Huber has been able to pass on price hikes of around5-10% to the consumer without hurting demand. We can absorb it, we can play with the rates muchmore than if you have fixed rates all the time, and that helps us a lot. If youtake two- or three-star hotels, they will have much more problems because thesepeople are very much more sensitive on the costs. Alongside energy, Switzerland also has stringentcontrols on the price of goods and services, making them less susceptibleto inflation-led fluctuations. Of the core products used tomeasure inflation in the euro zone,.

Including food, housing and transport,almost one-third are subject to price regulation in Switzerland — morethan any other European country. High tariffs on certain agricultural importsalso mean that domestically produced foods, such as milk and cheese, are preferentially priced andless impacted by movements in global food markets. We try to buy as much as possible Swiss, but evenregional, which really means bread, milk products and so on, to buy them locally. Long-term,you want to have a local industry working, functioning. And you need farmers, so it’simportant that they can sell their products. In December of 2022, Swiss food pricesrose at an annualized rate of 4.0%. That compares with 11.9% in the U.S.,16.9% in the U.K., and 19.8% in Germany.

At the restaurant, the food costs wecan adapt very easily in increasing the cost of the meals. But we’re cautiousalso, because you shouldn’t exaggerate. All of that doesn’t mean Swiss consumers havebeen totally immune to recent price hikes, however. In fact, some say they arefeeling the pinch more than ever. So, where have you felt it most? Energy prices, electricity. Some groceries have gotten more expensive. As usual, it’s the poor people orthe low wages that suffer from it, and they really have a problem.

Switzerland’s central bank saidit now expects inflation to dip to an average of 2.4% in 2023before falling to 1.8% in 2024. Even if we have a kind of recessionary scenario,people are still coming in, and that of course stabilizes demand. And I expect the same thingfor this year, 2023, and probably also for 2024. What, if anything, do you think othercountries can learn from the Swiss model? Exchange rate policy is very difficultto imitate, because we have the euro, and the euro has to consider allcountries. And I think for some countries an appreciation may be good forimport prices but really bad for export. This question about who owns energyproduction. Maybe it’s a good idea.

To think about to renationalize at least partof it to be more resilient and to have a long-term owner who really looks for theconsumer. In other places in Europe, there was a clear shift to privatization and, in the mediumto short-term, that was a very good idea, but it’s not very resilient and they are haunted by thesedecisions now. At the time, many people said the Swiss are too conservative. But I’d sayin retrospect it was a very good decision.

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