MNI BRIEF: SNB's Jordan Signals Persistent Infl, Rate Hikes

SNB chairman Thomas Jordan appeared on Tuesday to lay the ground for a sustained cycle of rate hikes to tame persistent inflation He called on central banks to “signal unequivocally” that the days of expansionary Covid-related coordination with fiscal authorities are over, despite political pressure to the contrary.

Jordan’s intervention comes just weeks after the SNB raised its policy rate by 0.75bp to +0.5% amid speculation policymakers may be forced to make an unscheduled hike in November, with communication seen as a key to avoiding such an outcome (see MNI INTERVIEW: SNB Could Be Forced Into Intra-Meeting Hike). A weaker-than-necessary monetary policy response could cause higher-than-expected inflation, he said, with SNB surveys suggesting Swiss firms are able to pass on higher input prices to customers more easily than before, while workers’ wage bargaining power is rising (see MNI INTERVIEW: SNB Should Not Hike Too Much - Ex-Staffer).

“Such structural changes, together with the fact that the monetary expansion and the fiscal stimuli from the past feed into inflation with a lag, might cause an underestimation of the persistence of inflation,” Jordan said.