Jean-Pierre Danthine: "the franc is a protective barrier against inflation"

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

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Inflation has reached its highest level in Switzerland for 29 years, still driven by soaring energy prices but also certain food products. Invited in La Matinale, the former vice-president of the SNB Jean-Pierre Danthine believes that Switzerland is still in a favorable situation.

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

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

Several factors explain this relatively low rate in international comparison, explains the former vice-president of the Swiss National Bank and now a professor at EPFL, Jean-Pierre Danthine: “The franc has firmed up. It is a little like a protective barrier against part of the inflation. It’s a bit like a boat in a furrow, we have phenomena of inertia which are more marked in Switzerland. In general, we also say that we are a little less dependent on energy, which is the dominant factor in price increases.”

The economist recalls that inflation in general is worrying: “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 in the tube”

Jean-Pierre Danthine, former vice-director of the SNB

Jean-Pierre Danthine distinguishes between two types of inflation: low and high. “Today, we are between the two, in a transition phenomenon. If the central banks act sufficiently strongly and in a credible way, it is possible to put the toothpaste back in the tube”, to use the metaphor of the former president of the German central bank, which declared: “Inflation is like toothpaste, once out of the tube, you can hardly put it back in again.”

“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 central banks must take up their pilgrim’s staff and do what they are called upon to do, that is to say try to regain price stability, namely inflation below 2%”, asserts the professor of macroeconomics.

“Good decision” from the SNB

In mid-June, the SNB announced that it had raised its rate by 50 points, surprising many people, whereas a decision of this type was rather expected for the month of September.

“It’s a good decision, because it was unavoidable. Central banks have been rather behind the move, which partially explains the rise in inflation. Doing it sooner and more firmly is a good something that reinforces the position of the SNB and the message that we are sending to the Swiss: that we are taking inflation head on,” analyzes Jean-Pierre Danthine.

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

For the SNB, the equation is simple, but perilous: curbing demand, without falling into a recession. “That’s why coming early is favorable. If we act too late, there is no solution. The braking must be very strong and we enter a recession. By arriving early, we can hope to slow down the swelling of the demand”, explains the one who is also director of the Enterprise of Society Center.

“What is really important is to avoid a catastrophe, such as a financial crisis. A slowdown in the economy – when we are in a favorable phase in terms of growth in Switzerland – is a good thing Ordinary people will not feel it, as soon as the economy is good enough to maintain jobs, which is the case in our country. This should allow us to avoid a recession and a crisis”, dissects finally Jean-Pierre Danthine.

Interview by Valérie Hauert

Web adaptation: Jérémie Favre

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