Swiss inflation turns negative for first time in four years

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Switzerland’s inflation rate has dipped into negative territory for the first time in four years, fuelling bets that the country will return to sub-zero interest rates in a bid to ignite prices and restrain a soaring currency.

Annual inflation was minus 0.1 per cent in May, with prices for air transport and accommodation among those dragging on the consumer price index. Prices rose 0.1 per cent month on month.

Traders have increased their bets in recent months that the Swiss National Bank will reduce interest rates to zero or below to deal with lagging inflation and a surge in the value of the Swiss franc, a haven currency that investors have bought up as a refuge from US President Donald Trump’s trade war.

The market is now pricing in two quarter-point rate cuts by the December SNB meeting, which would take the policy rate to minus 0.25 per cent.

Short-term government bond yields have dipped into negative territory, with the two-year bond yield reaching as low as minus 0.23 per cent on Tuesday, its lowest in three years.