How can Switzerland have Deflation and Low Unemployment simultaneously?

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Doesn’t a **stable deflation with low unemployment** defy all economist theories on why we should always have small inflation? What does Switzerland do right?

Inflation rate of -1.9% since 2010 [[source](https://lik-app.bfs.admin.ch/en/lik/rechner?periodType=Monatlich&start=12.2019&ende=12.2020&basis=AUTO)]
Unemployment rate (international standard) 4.5% to 5% [[source](https://www.macrotrends.net/countries/CHE/switzerland/unemployment-rate#:~:text=Switzerland%20unemployment%20rate%20for%202019,a%200.12%25%20decline%20from%202016)]
Unemployment rate (swiss national standard) 2.1% to 3.6% [[source](https://tradingeconomics.com/switzerland/unemployment-rate)]

In: Economics

2 Answers

Anonymous 0 Comments

The entire developed word has seen extremely low inflation since the end of the Great Recession.

I can’t speak for Japan or Europe, but that’s also gone along with low unemployment in the US.

Also, deflation isn’t good.

Anonymous 0 Comments

I can’t confirm your source on inflation because it cycles uncontrollably through different reference periods (I’ve never seen a bug like it!) But this [source](https://www.macrotrends.net/countries/CHE/switzerland/inflation-rate-cpi#:~:text=Switzerland%20inflation%20rate%20for%202019,a%200.71%25%20increase%20from%202015) seems to contradict the idea that the Swiss economy has experienced massive deflation since 2010. It had a few years with slight deflation and probably price stagnation overall.

Meanwhile, the unemployment graph you provided indicates that Swiss unemployment has been a bit higher in the last decade, even if it’s low by the standards of a lot of its neighbors. So on that level these data aren’t all that inconsistent with the “Phillips Curve.” Inflation went down – unemployment went up.

That said, the Phillips Curve isn’t so much an economic principle as a hypothesis based on observing a small number of economies over a short period of time. There’s already a lot of evidence that the Phillips Curve doesn’t always hold, especially in times of economic turmoil. Many countries famously experienced “stagflation” in the 1970s – high unemployment combined with high inflation. Now that you know the term, you can read up more on your own.