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  #21  
Old 19.10.2015, 20:50
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Re: Swiss annual deflation now at (-)1.4%

newtoswitz is on to the reason why this is happening. It is not some sort of magic that the Swiss are doing, it isn't even good for the Swiss economy (far from it). It is the nasty side effect of what everyone else is doing: printing money mad as the dickens.

It is quite simple really, the (in absolute terms) high prices in Switzerland combined with the falling Euro rate incentivise people to spend their money on products abroad, and foreign capital purchasing Swiss products to demand lower prices (in CHF terms). This inherently puts a downward pressure on the prices in Switzerland. Note that the inflationary effect in the EU is comparatively smaller, because the ratio of the Swiss money spent abroad to the Swiss monetary system is vastly bigger than the same measure vis a vis the EU monetary system.

The EU is basically exporting their deflation to other (fiscally more conservative) countries. A big net importer of this deflation is Switzerland, which is right in the middle and has conveniently high prices and purchasing power too.

The SNB tried to battle this for a while (with the Euro peg) but in the end it is questionable whether the costs of this intervention actually outweighed the benefits. It was a losing battle in any case, because there is a vast difference between the Swiss and EU bloc economies.

The situation is exacerbated by the fact that pretty much every big export economy (Germany, China, Japan and now India too) are in an increasingly fierce FX war. The US is currently a bit on the sidelines, as the Fed is trying (and somewhat failing) to start tightening the monetary policy.

As I wrote before, this is not good for us. Unless the fall in prices is matched by rising consumption and/or exports (unlikely in the current situation), this will translate to lower revenues for companies, who will then of course start cutting where it is the easiest: salaries and headcount. This again translates into the local population having less disposable income and cutting consumption - or moving it abroad. Don't make the mistake of thinking that all is fine and dandy, just because the midden hasn't hit the windmill yet.
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  #22  
Old 20.10.2015, 08:56
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Re: Swiss annual deflation now at (-)1.4%

The high value of the Swiss Franc is the cause of much of the deflation (falling prices) in Switzerland. The overvalued Franc is also causing job losses. Today's Handelszeitung has a slide show showing 64 companies that have cut jobs this year, most due to the uncompetitive Swiss currency:

http://www.handelszeitung.ch/bilderg...eichen-stellen

PS: Here are some more not mentioned in the Handelszeitung slideshow:
1) Glas Trösch: 140 jobs lost
2) Globus: 60
3) Mammut: 24
4) Smedegaard: 21
5) Sulzer: 20
6) Weba: 20
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  #23  
Old 20.10.2015, 09:18
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Re: Swiss annual deflation now at (-)1.4%

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I believe this is more common in the Swiss banks, particularly after they got burned in markets such as Hungary. It's also written in domestic mortgage contracts. It is written in my UBS mortgage.

Maybe CA doesn't have this as a standard term.
The problem in Hungary is that people borrowed against property that wasn't valued in CHF and were earning their income in a different currency as well. They were double-exposed, and had all sorts of liquidity issues when the franc strengthened.

CA lends to people who work in Switzerland and earn in CHF. So they perceive the income stream to service the mortgage debt as relatively secure.
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Old 20.10.2015, 10:21
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Re: Swiss annual deflation now at (-)1.4%

What you write, Xynth, makes sense but I think it's only part of the picture.

Another important aspect is our huge trades and services balance surplus. After having been in the range of 40-60bln for multiple years the surplus shot up to even 70bln in 2013 (back down to 47bln for 2014). As a result the buyers abroad of our goods and services create a net demand of 50bln CHF each year (70bln in 2013), which of course amounts to huge upwards pressure on the CHF. See this chart (data points are per quarter so four data points make one year).

This upward pressure on the CHF is likely to persist until the trades and services balance surplus has shrunk significantly (or the financial account, though this seems rather unlikely). This can be done by us buying more abroad (keeps inflation low, perhaps negative, happening now), or by exporting less (typically costs jobs, also happening now), or a combination thereof.

Sidenotes:
- CHF 70bln is 11-12% of swiss GDP, just to put that into perspective
- the balance had been roughly even until the Bilateral Treaties got implemented, after which it turned into a persistent surplus that kept (keeps?) increasing.
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Old 20.10.2015, 12:53
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Re: Swiss annual deflation now at (-)1.4%

looking at the index I see that the categorie with the biggest drop in prices are clothing and shoes (84.5 from 100 in 2010). Further it is the imported goods that are lowest (93) against the homeland produced goods prices that even inflated (101.3)

No mention of course of house prices nor health insurance in the index
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