(adds details, analysts' comments, background)
By Sven Egenter
ZURICH, March 6 (Reuters) - Swiss consumer prices posted an unexpected rise in February as higher food costs and rent increases outweighed falling energy bills, easing fears that the economy might face a harmful deflationary spiral.
But economists said the economic slump will dampen price pressures in the next few months and provide the Swiss National Bank with reason enough to lower borrowing costs further, potentially by turning to unconventional means.
Consumer prices rose 0.2 percent compared with January and
were also 0.2 percent higher than a year ago, the Federal
Statistics Office said. In a Reuters poll, economists had
expected a 0.1 percent year-on-year decline after inflation
stood at a 0.1 percent in January.
"Oil prices are still dampening inflation but not as strongly as we thought," said Sarasin analyst Alessandro Bee. "We will see negative inflation rates later this year due to a strong base effect as oil prices soared last year."
In February, prices rose for transportation, housing and energy, food and beverages as well as in restaurants and hotels.
"The annual rate nonetheless remains dangerously close to negative territory and hence is unlikely to sway the SNB from cutting rates in their March meeting," 4Cast analyst Saara Tuuli said. "Some type of quantitative easing options may also be discussed next week, following the lead of the Bank of England."
EASING
The SNB, which has slashed interest rates to close to zero, is expected to cut its target for the 3-month franc LIBOR by a quarter of a percentage point to 0.25 percent on March 12 and use unconventional means to boost the economy. [ID:nL5930820]
Switzerland faces its deepest recession in decades this year as exporters suffer from a collapse of global trade, though the country is holding up much better than trading partners such as Germany thanks to its robust consumer spending.
Core inflation stripping out food, energy, fuel and seasonal products was 1.3 percent, unchanged from January, and also stable at 1.6 percent taking out administered prices.
But a number of factors are putting a lid on prices: the two dominant supermarket chains -- Coop and Migros -- have started a new round of price cuts to fend off German discounter Lidl, which is entering the Swiss market.
The government-owned railway and other public transportation companies announced this week they would postpone price increases to 2010 due to the economic crisis. Finally, the surge in the Swiss franc makes imports cheaper.
A spiral of falling prices, lower wages and declining demand, however, was unlikely despite the economic slump due to robust consumption, Bee said.
Inflation expectations have fallen to an all-time low in the government's January consumer survey, but at the same time, consumers' readiness to buy big ticket items such as household appliances has also improved sharply.[ID:nLC801709]
(Reporting by Sven Egenter; editing by David Stamp)