According to the government, the previous price increases in Switzerland are manageable for households. The economy is doing well, unemployment is low and the forecasts point to falling inflation. But Parliament is likely to put pressure on the government soon.
According to the Federal Council, the price increases in energy costs will be manageable.
Since 1950, consumer prices in Switzerland have risen by an average of 2.2 percent per year. This year the rise is likely to be somewhat higher as a result of the surge in energy prices; in July, the consumer price index was 3.4 percent higher than a year earlier. In a historical comparison, this does not appear dramatic, but many had probably gotten used to inflation rates of 0 to 1 percent in recent times. Inflation of 3 percent is now enough to trigger calls for state “compensation”. Parliament will discuss a series of such proposals in the autumn session; In view of the prevailing fully comprehensive mentality, it would be rather astonishing if none of these initiatives found a majority.
At least the Federal Council does not want to celebrate operational hectic. On Wednesday he came to a sober but politically unattractive conclusion: the previous price increases are manageable for households. The fact that such a statement has to be described as courageous says a lot about the decadence of Switzerland’s affluent society.
The usual instruments
The Federal Council therefore currently sees no need for special government measures and refers to the ordinary adjustment channels. These include unemployment insurance, including short-time work allowances. This also includes the annual wage rounds in the private sector with the usual trade union demands for cost-of-living adjustments and real wage growth. The standard also includes regular adjustments of pensions, supplementary benefits and social assistance to the cost of living.
In the case of the AHV, the adjustments are based on a composite index that reflects the average of inflation and wage growth. Since 1950, wages have risen faster than consumer prices on average in about five out of six years; This means that the pension increase via the mixed index increased purchasing power on average. The purchasing power of AHV pensions is about 20 percent higher this year than forty years ago.
This year is likely to be one of the exceptional years in which prices are rising faster than wages. The Federal Council announced on Wednesday that it would decide whether to adjust the ordinary AHV and IV pensions this fall. And he could also make adjustments to the supplementary services. When asked, it was said that the reference to the pension adjustments meant the usual procedure based on the mixed index. But in parliament, a left/centre alliance is demanding that the federal government ignore the mixed index this year and pay the full cost-of-living adjustment – according to the motto “heads, I win, tails, you lose”.
Incidentally, the Federal Council recalled that the economic situation is still good at the moment: the recovery has recently continued and unemployment is very low. But in view of the great uncertainty about the future, the federal working group on energy prices should re-evaluate the need for action, taking into account further price and wage developments. According to Eric Scheidegger, the federal chief economist, the focus is more on measures for companies than for private households.
When bakers need help
The focus is, for example, on the proverbial bakery with the following story: after the opening of the electricity market for bulk consumers in 2009, it took the opportunity to look for a supplier itself; in recent years he has refrained from hedging prices via forward transactions; and he suddenly has to pay ten times the price he paid a year ago and therefore sees his business model in question. We are talking about around 23,000 companies that have stocked up on the free electricity market. It is unclear how many of them are now in such a difficult position as the bakery in question.
Various possible measures for such companies are conceivable; much will be on the table. The gentlest measures include private-sector negotiated solutions between companies and sectors and energy providers. One of the stupidest is artificially capping energy prices. Between these poles are measures such as bridging loans and hardship payments analogous to the Corona crisis. The demand that companies should be able to return from the free electricity market to the tied area with its currently much lower prices has already been heard. Providers in the restricted area have to base their prices on their own production costs and may only charge once a year. At the beginning of 2023, electricity prices in the tied area will rise by perhaps 20 to 30 percent on average – which would be far from the price explosion on the electricity exchanges.
A return of buyers from the free market to the restricted area would be contrary to the law, but the law could be changed. One can look forward to the September session of Parliament.