Living in luxury has become more expensive for the Swiss. A recent report by Swiss advisory firm Stonehage Group revealed that the cost of living for high net worth individuals has risen by 1.2 percent in the year ended August 2011. The rise may be modest, but it is significant given that costs for the same set of luxury goods have reduced by 6.2 percent compared to the last two years. The 1.2 percent rise calculated by the Stonehage Affluent Luxury Living Index appears even more striking given that the overall consumer price index saw a minimal rise of 0.2 percent over the same period. The Stonehage report focused on families with disposable assets worth $10 million and over.
One of the reasons for the rising living costs of affluent Swiss citizens is the increase in living costs. The luxury rental market especially has witnessed a strong rise in prices, which has pushed up living costs of wealthy individuals considerably. The premium cities of Geneva and Zurich have long been known for their expensive properties. This year, rising residential rentals have pushed Zurich ahead of Geneva. Geneva had been topping the charts with its high rental prices since 2007. What is notable is that the high costs of accommodation have played counter to other factors that have brought down the cost of living.
Over the last year, the Swiss Franc appreciated against the US dollar and the Euro. The Swiss Franc was valued at 21.1 percent stronger than the dollar and 10 percent stronger than the Euro. The strong Swiss Franc has been a good thing with respect to international high-end goods, whose prices have shrunk considerably. Thus, had the property rental prices not increased, we might have been seeing a big drop in the affluent luxury living index as calculated by the Stonehage Group. But that has not been the case, and high net worth individuals are busy shelling out more on luxury living than during the same period last year.
The strong Swiss Franc has not been good news for Swiss business exports. This forced the Swiss Bank to take a re-look and control the rise of the Franc vis-à-vis the Euro. The pegging of the Franc against the Euro has given rise to apprehensions about further inflation in the Swiss market. What has happened is that in some luxury sectors, the strong Franc has reduced prices considerably. One such sector is luxury travel, where prices have dropped by 5.6 percent. The reason for this is simple. The strength of the Franc against international currencies has ensured that international travel and related products fall in comparison.
But travel apart, several imported luxury goods have also seen big drops in prices because of the strong Swiss Franc. Cigars have been one of the big beneficiaries here, with prices dropping by as much as 10 percent. Champagne also joined the party with prices decreasing by 11 percent. Fine wine was not far behind. Prices for the latter fell by 4 percent. But there are other aspects of luxury living where prices have increased. These include art and luxury boats where prices have risen by 8 percent and 5 percent respectively. Coupled with rental rates, luxury living does not come cheap in Switzerland.