Swiss inflation slowed to the lowest rate in one and a half years, testing the determination of Swiss National Bank officials who have signaled that a further tightening step in September is likely.

Consumer prices rose 1.6% in July from a year earlier, down from 1.7% the previous month, according to Switzerland’s statistics agency. That’s the lowest increase in the developed world and matches the median estimate in a Bloomberg survey.

The slowdown was primarily due to cost decreases in air travel, package holidays and women’s clothing. Underlying inflation, which strips out volatile elements like energy, inched down to 1.7%.

The headline gauge has now been within the central bank’s target range between 0 and 2% for two months in a row. Still, policymakers predict that inflation will rebound to 2% by the end of the year, and then stay above that level until early 2026. That’s because a wave of rent increases and electricity price are expected in the coming months.

Based on this, SNB President Thomas Jordan told Bloomberg Television in June that he “most likely” sees more hiking ahead “to bring inflation on a permanent basis below 2%.” Sticky underlying price growth might add to the case for a further increase.

Officials meet for their next scheduled rate decision on Sep. 21. Financial markets have fully priced in the possibility of one more rate hike by mid-2024.

Based on the European Union’s harmonized measure, Swiss inflation was 2.1% in July, less than half the rate of the surrounding euro area. This large differential has persisted throughout the recent global inflation surge.

--With assistance from Joel Rinneby and Simbarashe Gumbo.