Bern, June 16, 2022

Thomas Jordan

Press conference

Inflation forecast

Inflation reached 2.9% in May and should initially remain at a relatively high level. This level is mainly explained by the increase in the price of petroleum products and foodstuffs and goods affected by supply difficulties.

• worldwide. But price increases have also accelerated for a number of other goods and services.

The new SNB conditional inflation forecast is based on the assumption that the SNB key interest rate remains constant at -0.25% throughout the forecast period. It is above that of March for the next three years (see graph 1), standing at 2.8% for 2022, 1.9% for 2023 and 1.6% for 2024 (see table 1). Without today’s rate hike, the inflation forecast would be significantly higher.

International Economic Outlook

I now come to the outlook for the economy. Global economic growth has slowed significantly in recent times.

This trend is partly due to high inflation, which weakens demand by weighing on purchasing power. On the other hand, it is explained by the uncertainty resulting from the war in Ukraine and the containment measures imposed in China due to Covid-19. Unemployment, on the other hand, continued to fall in many regions. In industrialized countries, it is currently about the low level recorded before the pandemic.

Since March, inflation has risen sharply again on a broad front in many countries. The war in Ukraine plays a central role here too, driving up the prices of many raw materials. In addition, the persistent supply difficulties led to further price increases for various goods.

In our baseline scenario for the global economy, we assume that energy prices will initially remain high, but that there will be no severe energy shortages in large economic areas. The positive trend in the economy should therefore continue overall. Inflation is expected to remain high for some time following rising energy and food prices and supply difficulties. However, these factors should fade in the medium term. Also under the influence of the ever more marked tightening of monetary policy in many regions, inflation should gradually return to more moderate levels.

Significant risks weigh on our scenario for the global economy. Thus, inflation could continue to increase and weigh even more on real incomes and consumption. At the same time, a strengthening of second-round effects could prolong the phase of high inflation, which would require stronger policy responses.

Bern, June 16, 2022

Thomas Jordan

Press conference

currencies abroad. Finally, the war in Ukraine and the pandemic continue to pose significant downside risks to growth.

Economic outlook for Switzerland

Let me now turn to developments in our country. In Switzerland, the favorable economic development recorded since the beginning of the year continued. After modest growth in the fourth quarter of 2021, gross domestic product (GDP) grew by almost 2% in the first quarter of this year. For the current quarter, the signals remain positive. The situation on the labor market also continued to improve.

The war in Ukraine has so far had relatively little impact on economic activity in Switzerland. The most visible consequences are the increase in energy prices and supply difficulties.

For this year, we continue to expect GDP growth of around 2.5%. Unemployment should remain low. This favorable forecast is based in particular on the assumption that the world economy will continue to grow and that the war in Ukraine will not worsen.

As for abroad, the uncertainty surrounding the forecasts remains high for Switzerland. A disruption of the energy supply in Europe could significantly affect the economy of our country. Global supply difficulties and further increases in commodity prices could also dampen growth. In addition, a resurgence of the Covid-19 pandemic cannot be ruled out.

Monetary policy tightening

Ladies and gentlemen, let me come back to monetary policy. I would like to share with you the thoughts that led us to make our decision today. Andréa Maechler will then discuss in detail the adaptation of the exemption factor.

We have decided to raise rates by half a point, as there are signs that inflation is now spreading to goods and services not directly affected by the war in Ukraine and the consequences of the pandemic. In the current environment, price increases are passed on more quickly and are also more easily accepted than was the case until recently. Second-round effects are likely to persist if inflation is higher

• 2% for an extended period. With the rate hike decided today, we intend to counter the increased inflationary pressure.

Since the March review, developments in the exchange rate for the franc have also contributed to the rise in inflation. Even though inflation was stronger abroad, the franc depreciated in value weighted by foreign trade. Thus, Switzerland has increasingly imported foreign inflation. The depreciation combined with a markedly greater inflation differential with foreign countries has another consequence that the franc is no longer at a high level.

Bern, June 16, 2022

Thomas Jordan

Press conference

What is the outlook for monetary policy? The increase in the SNB’s key rate should contribute to curbing the evolution of inflation in Switzerland through its effects on the cost of credit and on the exchange rate. Our new inflation forecast shows that from the current outlook, the inflation rate is expected to decline temporarily to around 1.5% before returning over time to around 2% if the SNB policy rate is held constant at − 0.25%. Without today’s rate hike, inflation would be well above the zone considered price stability at the end of the forecast period.

The new inflation forecast shows that further rate hikes may be needed in the near future to stabilize inflation in the medium-term range considered price stability. The current context is marked by great uncertainty, particularly with regard to the evolution of exchange rates. If the franc were to appreciate excessively, we would be prepared to buy currencies. In case the franc weakens, we would conversely consider selling currencies.

We will carefully observe developments in the situation and are ready to take the necessary measures in all circumstances in order to guarantee medium-term price stability in our country.

Ladies and gentlemen, thank you for your attention. I now give the floor to Fritz Zurbrügg.

Bern, June 16, 2022

Thomas Jordan

Press conference