Switzerland falls into deflation: What it means for you

After months of falling inflation, Switzerland finally sank into deflation in May 2025, new data has revealed. Here’s why the country has fallen into deflation, what its impact will be and how it will affect you:

Deflation arrives in Switzerland

According to data revealed by the Federal Statistical Office (FSO) on June 3, annual inflation in Switzerland fell from 0 percent in April to -0,1 percent in May 2025. While Swiss-made goods and services are 0,6 percent more expensive than they were a year ago, imported goods are 2,4 percent cheaper. 

This is the first time the country has fallen into deflation since March 2021, during the height of the COVID pandemic. Since then, inflation spiked to 2,8 percent at the end of 2022, following the Russian invasion of Ukraine. During this period, workers in Switzerland suffered their largest losses in purchasing power since World War II.

The situation improved in 2023, when inflation fell below 2 percent in the spring. Rates have since continued to fall, dropping below 1 percent in September 2024.

Why is Switzerland so prone to deflation?

In contrast to other European countries, where inflation remains a key concern, Switzerland has long faced periods of deflation. Annual inflation has been below 1 percent in 13 of the last 17 years, and was negative in 2009, 2012, 2013, 2015, 2016 and 2020.

In 2025, the Swiss National Bank (SNB) blames the current spate of deflation on the strength of the Swiss franc and falling energy costs. Despite their attempts to make the currency cheaper, the franc has achieved record valuations against the US dollar and euro in recent months, due to its status as a safe-haven asset in times of global instability. This means that while goods produced in Switzerland will be more expensive for those outside the country to buy, imported goods are much cheaper.

What impact will deflation have on the economy and workers?

As it stands, people in Switzerland will not yet feel the benefits of deflation. According to the consumer price index, the cost of living actually rose by 0,1 percentage points between April and May 2025. The FSO explained that the cost of renting a house or apartment, holidays, fruits and vegetables rose in the last month, while only the cost of air travel and heating oil fell.

While deflation may lead to a rise in real salaries in Switzerland in the short term, in the long term, it can have a profoundly negative effect on the economy. As prices drop, businesses attempt to remain profitable by cutting costs, including by laying off workers. These workers can not afford to buy products, and prices are cut further, and the economy contracts as overstretched businesses fail. 

Luckily, according to the latest forecast from UBS, this is not likely to happen in Switzerland, at least in the short term. The bank expects the economy to grow by 1,3 percent in 2025, up from the 1 percent predicted previously.

However, experts told Blick that, thanks to US tariff policies, growth will slow for the rest of the year. "In the coming quarters, US tariffs are expected to have a negative impact on exports, particularly due to the offsetting of anticipated effects, and GDP is therefore expected to stagnate," they wrote, concluding that a global recession cannot be ruled out, and that Switzerland will not be immune.