Swiss import and producer price inflation held steady at a lower-than-expected level in June, data showed on Friday, dampening fears that the weak Swiss franc could be pushing prices up sharply.
The franc fell on the data to a fresh 1-month low against the euro as the benign inflation picture gave the Swiss National Bank little reason to step up its tightening pace. Switzerland's combined producer and import price index rose 2.8 percent from a year ago in June and was unchanged compared to May, the Federal Statistics Office said.
A Reuters poll of 10 economists had given a median forecast for yearly inflation to accelerate to 3.1 percent from 2.8 percent in May. "(The data) confirm once more that inflation is not really an issue in Switzerland," UBS analyst Reto Huenerwadel said.
Producer prices rose 2.5 percent year-on-year and 0.1 percent month-on-month. Import prices fell 0.1 percent on the month for a 3.4 percent annual rise. Import prices fell on the month for copper and copper products, other metal goods and computer systems but rose for coffee, crude oil, steel and nickel, the office said.
The SNB has warned repeatedly that the weak franc, still near 9-year lows versus the euro, could drive up the cost of Swiss imports. So far, consumer price inflation has remained well below the SNB's 2 percent threshold at just 0.6 percent in June.
But analysts said fast economic growth and falling unemployment levels were increasing the scope for higher wages. "It's certainly good news for the SNB but a 3.4 percent increase in import prices compared to one year ago is still elevated and it is still difficult to tell what effect Swiss franc weakness is having on inflation," Credit Suisse analyst Thomas Herrmann said.
Evidence has been mounting recently that Swiss companies are gaining confidence about passing on higher costs. Last week, Swiss elevator and escalator maker Schindler said it had raised prices in Switzerland by 8 percent in the face of rising raw material costs and the weak franc.
The head of Swiss bakery group Hiestand said in a Reuters interview that price rises were likely before the year end. Most economists still see the SNB raising its benchmark interest rate by 25 basis points to 2.75 percent at its next meeting in September, but markets are pricing in a significant chance of more aggressive tightening.
Despite the surprise in June, input price inflation was near usual cyclical highs, Calyon's Henrik Gullberg said. "Combined with the ongoing weakness in the franc this situation is likely to make the SNB increasingly uncomfortable and while it is not our main scenario, an intra-meeting tightening or a more aggressive hike at the September quarterly policy review can not be ruled out," he said.
The franc fell to 1.6634 per euro after the inflation data, the lowest level since the SNB raised its money market rates faster than usual a month ago in what markets took as a sign that it would not tolerate a further weakening of the currency.