Michael Pfister at Commerzbank notes that higher Oil prices and a stronger Swiss Franc are offsetting each other on inflation, leaving Swiss price pressures subdued. With the Swiss National Bank stepping up verbal intervention against Franc strength and likely to move to active intervention, he expects the foreign exchange market to probe stronger CHF levels only gradually.

Franc strength versus imported inflation

"Yesterday's Swiss inflation figures for February were rather unspectacular. The headline rate was 0.1 percentage points higher than expected, while the core rate was 0.1 percentage points lower."

"Furthermore, Swiss inflation has remained at this low level for many months. Even the conflict in the Middle East is unlikely to change this. Oil prices are rising, which will likely push up transport prices in Switzerland."

"However, the stronger franc, which is a result of risk aversion, is easing imported price pressure. It is difficult to quantify how these two factors balance each other out."

"The Swiss National Bank (SNB) is unlikely to want to risk falling short of its inflation target, and has therefore significantly stepped up its verbal interventions against the franc's appreciation this week. Such warnings from the SNB are rather rare, so I would not expect too many more."

"The next step is likely to be active intervention. Therefore, the foreign exchange market should only test stronger CHF levels very slowly."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)