Jean-Pierre Danthine: “The franc is a protective barrier against inflation”

Inflation in Switzerland has reached its highest level in 29 years, still driven by rising energy prices, but also certain foods. Former SNB Vice President Jean-Pierre Danthine has been invited to La Matinale and still sees Switzerland in a favorable position.

The Federal Statistics Office said on Monday that the consumer price index (CPI) accelerated to +3.4% in a year after rising 2.9% in May from 2.5% in April and 2.4 % in March. These numbers are at the top of the range of forecasts by economists polled by agency AWP, who expected prices to rise between 2.8% and 3.5% over a year.

“It’s like a devil coming out of his box”

A number of factors explain this relatively low exchange rate by international standards, explains Jean-Pierre Danthine, former Vice President of the Swiss National Bank and now a professor at EPFL: “The franc has strengthened. It’s a bit of a protective barrier against some of the inflation. It’s a bit like a boat in the furrow, we have inertia phenomena that are more pronounced in Switzerland. In general, we also say that we are a little less dependent on the energy that dominates the price increases.”

The economist recalls that inflation in general is a concern: “It’s a devil that comes out of the box and it’s very difficult to put it back in,” he says.

“It is possible to put the toothpaste back into the tube”

Jean-Pierre Danthine, former Vice President of the SNB

Jean-Pierre Danthine distinguishes between two types of inflation: low and high. “Today we are between the two, in a transitional phenomenon. If central banks act with sufficient strength and credibility, it is possible to put the toothpaste back in the tube”, to use the metaphor of the former President Deutsche Bundesbank, who explained: “Inflation is like toothpaste, once out of the tube you can hardly put them back in.”

“You have to compare what is happening in other countries, in Europe and the United States, we are closer to 10%. In Switzerland we are still in a relatively favorable situation, but it is clear that the central banks must take up their pilgrimage and do what they are asked to do, which is to try to regain price stability, namely inflation below 2%,” affirms the Macroeconomics Professor.

“Good decision” by the SNB

In mid-June, the SNB announced that it had raised interest rates by 50 points, surprising many, while such a decision was expected more in September.

“It’s a good decision because it was inevitable. Central banks tended to lag behind, which partly explains the rise in inflation. Doing it earlier and more decisively is a good thing, which strengthens the position of the SNB and the message we have to send to the Swiss: that we counteract inflation,” analyzes Jean-Pierre Danthine.

>> Read also: The SNB raises its key interest rate and raises its inflation forecasts

For the SNB, the equation is simple but dangerous: curb demand without slipping into a recession. “That’s why it’s good to come early. If we act too late, there is no solution. Braking must be very strong and we are entering a recession is also director of the Enterprise of Society Center.

“What’s really important is to avoid a catastrophe like a financial crisis. A slowdown in the economy – when we’re in a favorable period of growth in Switzerland – is a good thing that the common man won’t feel anytime soon.” as the economy is good enough to sustain jobs, which is the case in our country. This should allow us to avoid a recession and a crisis,” concludes Jean-Pierre Danthine.

Interview by Valerie Hauert

Web adaptation: Jérémie Favre

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