Inflation island Switzerland?

_ Dr. Ulrich van Suntum, honorary professor, University of Münster, former Secretary-General, German Expert Council for the Assessment of Overall Economic Development (SVR). 13 May 2022.*

Everywhere in the Western world, consumer prices have risen sharply – except for Switzerland. While the inflation rate in Germany was 7.4 percent most recently and even climbed over eight percent in the USA, it was only 2.5 percent in April in Switzerland.[1] That was higher than a year ago, when prices were still practically stable at a barely noticeable 0.3 percent. But it’s no comparison to the skyrocketing cost of living in the euro countries. Of course, one wonders why that is.

References to the traditional reluctance of the Swiss in wage negotiations are not very convincing. Because the current inflation in other countries cannot be explained by high wage agreements, at least not yet. At the moment it is rather the other way around: the rapidly increasing costs, especially for food and energy, are practically forcing the trade unions to demand appropriate compensation for wages and salaries. This is not significantly different in Switzerland either.

One gets closer to the truth if one looks at the differences in energy generation. Because while Germany, for example, generates around 40 percent of its electricity from coal and gas, hydropower and nuclear energy play a decisive role in Switzerland. The Swiss get no less than 58 percent of their electricity from their rivers and lakes, another third from nuclear power plants, which are (being) banned in Germany.

Life in Switzerland is expensive for EU citizens

The Alpine republic was only hit to a limited extent by the price shocks on the oil and gas markets as a result of the Ukraine war. One doesn’t have to pay less at the petrol stations in Zurich or Basel than in Berlin or Düsseldorf.[2] But this is far less noticeable in the price index than elsewhere, since energy consumption plays a comparatively smaller role in the Swiss shopping basket.

Despite this, it is extremely expensive for EU citizens to live or shop in Switzerland. Anyone who has been on vacation there in the recent past will be able to painfully attest to that. But that has other reasons, primarily the exchange rate. Ten years ago one could still buy about 1.5 Swiss francs for one euro, today it is only one. This in turn is due to the much less expansive monetary policy pursued by the Swiss central bank compared to the European Central Bank. The money supply (defined as M3) in the euro area has grown by around 60 percent over the past ten years, much faster than real economic output. As a result, there was a huge potential for inflation, which is now being discharged.

In Switzerland, on the other hand, the money supply increased by only 40 percent over the same period. That was also more than real economic growth, but the discrepancy was much smaller. The fact that the Swiss National Bank allowed the reins to be relatively loose at all was again due to the expansive monetary policy of the neighbouring countries, namely the euro area. Otherwise, the Swiss franc would have appreciated much more against the euro. With regard to the competitiveness of their own products (and Switzerland as a holiday destination), they wanted to avoid that at all costs.

Switzerland remains a place of longing for German taxpayers

In any case, the overall more solid monetary policy is likely to be the most important explanation for the comparatively moderate inflation trend. The stable exchange rate of the franc itself also contributes to this. From a Swiss point of view, it keeps import prices within reasonable bounds, as these are mostly shown in dollars or euros. On the other hand, price stability in the euro area is also suffering from the weak euro exchange rate against the dollar, as this is driving oil and gas bills in particular higher.

Overall, Switzerland will not be able to remain a lonely island of stability either, as it is too closely interwoven with its trading partners. But relative to the euro area and most other countries, the Swiss have nothing to complain about. They also suffer from negative interest rates, but at least their money is (still) reasonably stable. Switzerland will therefore probably continue to be the place of longing for German savers, whose assets are being halved every ten years, given the current inflation in Germany.


[1] Junge Freiheit (2022). Energie und Lebensmittel teurer: Inflation erreicht Rekordwert. URL:

[2] Junge Freiheit (2022). Krieg, Energiewende und die Gier des Fiskus. URL:

*Translated and republished from the original with kind permission: Van Suntum (2022). Auf Inflationsinsel Schweiz? Junge Freiheit. URL:

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