In a surprise move Switzerland consumer price inflation rose higher then forecasts.
The move will certain triggers speculation of quicker normalisation of extreme policy. Swiss May CPI came in at 0.4% m/m vs. 0.3% m/m exp (1.0% y/y vs. 0.9% y/y) while core CPI climbed 0.1% m/m and 0.4% y/y. The higher read was spread around underlying components indicating a continue of strong trend since Feb 2016. Yet simple projections have inflation reaching the SNB target around late 2019, so the central bank is unlikely to panic when it sees these numbers.
Calls to push the tightening cycle forward is likely to fall on deaf ears. With political risk rising in Europe resulting into a stronger CHF, the SNB will stay steadfast in current defensive policy mix. In fact, at the 21st June rate decision we will likely hear further commitment by the SNB to weaken 'overvalued' CHF, rather than acknowledging inflation pressures.
The SNB has played a dangerous game with extreme policy actions, unwinding these actions will come with significant certainties. Even subtle changes in language could be the catalyst to reloading CHF long by investors who have long abandoned the currency due to high carry costs.
EURCHF was higher on the news as trade remains focused on the short term positive news out of Italy over the long play of SNB policy.
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