21 Consecutive Months of Swiss Deflation Comes to an End


THE TAKEAWAY: 21 months of Swiss deflation comes to an end in July -> SNB currency devaluation may finally be affecting local prices -> Little Franc reaction

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The annual change in Swiss consumer prices stopped declining in July for the first time in twenty one months, as a policy of currency devaluation may finally be affecting local prices.

Consumer prices were unchanged from July 2012, higher than expectations for consumer prices to indicate 0.1% deflation for the second consecutive month. Consumer prices declined 0.4% on a monthly basis in July, according to the Swiss Federal Statistics Office.

The Swiss National Bank cut its price forecast in June to -0.3% for 2013 and 0.2% for 2014. The SNB has maintained a 1.20 cap in Franc trading against the Euro, to stem gains in the local currency following currency inflows during the Euro-zone debt crisis. The continued sale of the Franc in Forex markets may have driven local prices higher in Switzerland, if not for the constant deflation seen in the Swiss economy. However, if a change in prices in the upcoming months signals building inflation, the SNB may reconsider its Franc devaluation policy.

Therefore, the higher than expected change in consumer prices should have been Franc positive. However, the Franc continued to trade around 1.2320 against the Euro following the CPI release. The 1.24 line may continue to provide resistance, and a rising trend line from April may provide support around 1.2288.

Also reported in Switzerland today, the SNB’s foreign currency reserves was reported at 434.9B in July, only slightly higher than the 434.8B seen in June. Also, the SECO Consumer Confidence (Jul) was reported at -9 for July, disappointing expectations for -1.

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EURCHF Daily: August 7, 2013

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21_Consecutive_Months_of_Swiss_Deflation_Comes_to_an_End_body_eurchf.png, 21 Consecutive Months of Swiss Deflation Comes to an End

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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