The Swiss model: how it avoids double-digit inflation while others struggle
Switzerland’s low inflation rate amid a global surge in prices has helped shield the country’s economy from some of the adverse impacts of inflation.
Unlike many other advanced economies that are experiencing double-digit inflation rates, Switzerland’s inflation peaked at 3.5% in 2022, below the global average.
A combination of factors has contributed to Switzerland’s relative price stability, including the high cost of living, the stability of the Swiss franc, resilient energy supply, and price controls on goods and services.
Switzerland is one of the wealthiest countries globally, with a GDP per capita that surpasses that of the US, Japan, and Germany. The Swiss cities of Zurich and Geneva remain among the world’s most expensive cities, even as inflation has pushed up living costs in other pricey places.
As a result, Swiss citizens are generally less impacted by price rises, as they tend to spend a lower proportion of their income on essential items such as food and accommodation, compared to discretionary items.
Another reason for Switzerland’s relative price stability stems from the strength of the Swiss franc, which has steadily risen in value to reach parity against the euro in 2022.
The Swiss franc is heavily backed by large reserves of gold, bonds, and financial assets, helping the Swiss National Bank to ensure the currency’s stability during times of volatility.
This benefits Switzerland, an economy heavily dependent on international trade, as a stronger Swiss franc provides an effective discount on imports. Switzerland exports a nearly equal $305 billion annually, mostly consisting of higher value goods and services, such as watches and pharmaceuticals, which are less susceptible to price fluctuations than low-margin, mass-produced commodities.
Switzerland is less exposed to some of the external factors that have pushed prices higher in 2022, such as Russia’s war in Ukraine.
With hydroelectricity playing a significant role in its energy supply, Switzerland is less reliant on oil and gas imports than some of its European neighbors. Moreover, Swiss energy suppliers are largely publicly owned, subject to stricter pricing regulation, and less exposed to extreme market volatility through financial safety nets.
Alongside energy, Switzerland also has stringent controls on the price of goods and services, making them less susceptible to inflation-led fluctuations. Almost one-third of the core products used to measure inflation in the Eurozone, including food, housing, and transport, are subject to price regulation in Switzerland, more than in any other European country.
High tariffs on certain agricultural imports also mean that domestically produced foods, such as milk and cheese, are preferentially priced and less impacted by movements in global food markets, which, in turn, has helped stimulate the country’s economy.
Its low inflation rate has also helped to maintain the country’s status as a financial hub, as businesses continue to flock to Switzerland, attracted by its low tax rates, stable political environment, and skilled workforce.
Home to world’s largest banks
The country is home to some of the world’s largest banks, including UBS and Credit Suisse, and several global tech giants like Google, IBM, and Microsoft. The favorable business climate, coupled with Switzerland’s skilled labor force and innovative business ecosystem, has helped to create a thriving start-up scene and attract foreign investment.
The country’s low inflation rate amid a global surge in prices has helped shield the country’s economy from some of the adverse impacts of inflation.
A combination of factors, including the high cost of living, the stability of the Swiss franc, resilient energy supply, and price controls on goods and services, has contributed to Switzerland’s relative price stability.
Moreover, the country’s low inflation rate has helped maintain its status as a financial hub, attracting businesses, and foreign investment.
As the global economy continues to grapple with inflation, Switzerland’s resilience offers valuable insights for policymakers and businesses worldwide.