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For years, lamentations about the Swiss franc predominated. The Swiss exporters in particular set the tone. The strong franc leads to a constant price negotiation battle or, in the worst case, to margin losses, which means that local companies have had to lower prices because foreign customers with their weakening currency are no longer participating.
The constant complaints, justified or less depending on the degree of self-production, found a hearing: The Swiss National Bank (SNB) bought shares and bonds in euros and dollars for enormous amounts of money in order to weaken the Swiss franc. Because a too strong Swiss franc is not good for business.
Strong franc suddenly welcome
But now the tide has turned. For around two months now, the SNB has no longer identified the strong Swiss franc as the greatest concern, but increased inflation. It was 3.4 percent in July and is putting a strain on purses in Switzerland. The SNB price watchdogs want to get the situation under control in the medium term by raising interest rates. The goal would be inflation below two percent. The SNB even hiked interest rates before the European Central Bank (ECB).
As a result, the Swiss franc continued to strengthen. But unlike in the past, things have become surprisingly quiet around exporters. Apparently, the majority of them still manage to enforce their prices on the market – with the argument “inflation”. And consumers are happy anyway: the strong Swiss franc is an important factor, which is why Switzerland is doing comparatively well in terms of inflation. As is well known, this is 8.9 percent in the euro area and similarly high in the USA.
Difficult predictions
The mechanism is simple: if the franc strengthens, Swiss consumers benefit, but so do importers. The partly massively higher prices of foreign products are thus reduced again somewhat.
How inflation and the Swiss franc will develop is difficult to predict and depends heavily on international energy prices and the monetary policy of the SNB. But one thing is clear: in the current environment, a strong franc is welcome for once.