Source: Swiss Federal Statistics Office, Worldbank. Data for the period 1984-2020. For illustration purposes only. Prior inflation rates are not indicative of future price movements.
So, what are the causes of these inflation shifts?
While not all of the reasons are understood, three factors have been identified.
One is increased costs for suppliers. A great example is the current shortage in semiconductors. Because they are demanded by everyone – from car to computer manufacturers – companies must pay higher prices to compete for the shortened supply. They must then reflect this in their own prices, or they will go out of business.
Secondly, there’s consumer-driven demand. When the economy is doing well, more people gain the purchasing power to demand the same available goods. Prices naturally rise in order for suppliers to avoid running out of stock (and to maximise profits).
Finally, there’s money printing. Central banks can help stimulate the economies by increasing the amount of currency in circulation. What this does is temporarily give consumers more spending power. They buy more which enables companies to hire more staff to output what’s needed. But over time, the fact that they have diluted the value of every franc or dollar must be accounted for (you can’t just make money out of thin air!) As each franc reduces in value, companies must raise their prices to retain their margins. For example, the surge in inflation during the early 90s we mentioned earlier, is mainly attributable to the Swiss National Bank’s expansionary policy that followed the 1987 stock market krach.