On 31 October it will be that time again as children dressed as vampires, witches or ghosts roam the streets trick or treating. Originating in America, this custom has long since found a foothold on the Old Continent. Whilst the thrills and chills of Halloween are now a firm fixture on the calendar, every so often a spectre feared by politicians, monetary authorities, consumers, businesses and, not least, investors makes its presence felt. What is haunting them is inflation. When general price levels rise excessively, money loses its value. It is the task of central banks to counteract such trends, which are harmful for consumers and the economy, and that is why those who lead these institutions are also referred to as “monetary watchdogs”. A certain amount of inflation is desirable. To give an example, the European Central Bank (ECB) considers an inflation rate of about 2% as ideal for price stability and economic growth in the medium term. The U.S. Fed and the Bank of Japan (BoJ) likewise work towards the same target, while the Swiss National Bank (SNB) aims for a bandwidth of 0% to 2%.
As far as inflation is concerned, the SNB can be relatively relaxed at the moment. Although Switzerland is feeling the effects of the sharp rise in energy prices as a result of the Iran war, the upward movement is being cushioned by the strong franc in particular. In September the national consumer price index was up 1.0% on the previous month’s level. Most of the other members of the OECD can only dream of such a figure: in August, inflation in the 38 member states of the Organisation for Economic Cooperation and Development averaged 4.3%. Inflationary pressure may have been greater in the past – the collapse of global supply chains in the wake of the coronavirus pandemic caused a veritable price shock a few years ago, for instance – but inflation in the OECD is currently well above the long-term average (see graph).
Excepting the SNB, the central banks mentioned felt compelled to react, with the ECB, Fed and BoJ tightening the purse-strings in September. Never before had this trio taken such concerted action of raising interest rates in the same month. “Most advanced economies are facing price pressures,” Fed chairman Kevin Warsh stated. It doesn’t look as if the central bank boss, who was appointed to the post by US president Donald Trump in May, will be able to fulfil a wish that the White House so cherishes, given that Trump is agitating for an easing of monetary policy. In contrast to how he treated Warsh’s predecessor, Jerome Powell, however, he has so far refrained from attacking the new man at the top of the Fed. This may also have something to do with the fact that the president himself triggered a sharp rise in prices by taking military action against Iran. The inflation rate in the United States came in at 3.7% in September, 0.3 percentage points above the previous month’s level.
Since there is little likelihood of a solution to the Middle East crisis, the price of oil remains at a stubbornly high level. Inflation is thus likely to continue to haunt leading economies well beyond Halloween. Whilst consumers have relatively few opportunities to react, though, investors can certainly do something. There is a raft of assets that perform comparatively well in periods of inflation. In the fixed-interest sector, rising yields can go some way towards mitigating the impact of inflation. It goes without saying that commodities correlate directly with price levels. Finally, property and certain shares are a tried-and-tested way of confronting the spectre of inflation. Several years ago the strategists at Swissquote set themselves the task of optimally combining the various assets. This led to the launch of the Swissquote Inflation Index – and the strategy is currently at record levels.
Source: OECD Data Explorer as at October 2026