Swiss inflation falls to lowest in nearly four years

ZURICH (Reuters) - Swiss inflation fell to its lowest level in nearly four years in February, government data showed on Wednesday, increasing the likelihood the Swiss central bank will cut rates later this month.

Consumer prices rose by 0.3% last month compared with a year earlier, the smallest increase since April 2021, as imports became cheaper.

Although some items, such as rents and packaged holidays, were more expensive than a year earlier, other items like second-hand cars, personal care products and medicines were cheaper, pushing the inflation rate down from the 0.4% rate in January.

Prices for domestic products rose by 0.9% while imported goods fell by 1.5%, bringing the overall figure down, the figures from the Federal Statistics Office showed.

They raise the likelihood the Swiss National Bank will cut its policy rate from the current 0.5% at its next meeting on March 20 to prevent inflation falling below its 0-2% target range.

Markets have priced in an 89% probability the SNB will cut to 0.25%, while there is a 22% probability that rates will be reduced to 0% at the SNB’s second meeting this year on June 19.

"A 25 basis point cut is the most likely action by the SNB later this month," said GianLuigi Mandruzzato, an economist at EFG Bank.

"Inflation is very low, but in line with the SNB’s forecasts, while there could be upside risks later in the year. Domestic and core inflation at 0.9% are also right in the middle of the SNB’s target range so there is no need for more drastic action."

The SNB declined to comment on the latest data, although Chairman Martin Schlegel has said the central bank expected inflation to remain within its target range over the next three years.

"With a view to future decisions, we are not ruling anything out. If necessary, we would also reintroduce the negative interest rate," he told Swiss newspaper Tages-Anzeiger in an interview published on Saturday, before the latest inflation data.