The latest inflation projections for Luxembourg signal a slowdown in price escalations. This is good news, but it also entails a delay in the next wage indexation.

Initially slated for the summer of 2024, the next wage adjustment is now postponed until the year's end, as announced by the National Institute of Statistics and Economic Studies (STATEC) on Thursday.

Recent inflation forecasts for the Grand Duchy indicate a less pronounced uptick in prices. "Echoing trends in the eurozone, inflationary pressures in Luxembourg waned more than anticipated by the close of 2023," STATEC noted.

Projections indicate a 2.2% uptick in prices for 2024, down from the previously estimated 2.5%. This decline is attributed in part to a drop in petroleum prices and lower inflation in the food and service sectors.

As per STATEC's latest "central" scenario, the next wage indexation will trigger a rise in wages "in the fourth quarter of 2024," deviating from the initially expected summer timeline. Looking ahead, STATEC envisions the subsequent wage indexation occurring in the summer of 2025.

STATEC has also outlined two alternative scenarios contingent upon energy price trends:

  • A "low" scenario featuring minimal inflation, allowing for a wage indexation by late 2024 but none in 2025.
  • A "high" scenario characterised by elevated inflation, triggering a wage indexation in summer 2024 followed by two additional indexations in spring and summer 2025.

The "central" scenario remains the most likely, according to STATEC. This would also align with the government's strategy of limiting wage indexations to once per year to guarantee the competitiveness of Luxembourg's businesses.

Energy price surge looms: Luxembourg will have to act

Despite the optimistic projections, residents are confronted with a looming threat: the potential termination of energy price controls by 31 December 2024, without corresponding "additional measures," could result in a significant spike in energy costs. Gas prices could skyrocket by 17%, while electricity rates may surge by a staggering 60%.

The current energy price controls implemented by Luxembourg have effectively mitigated the risk of an uncontrolled surge in energy costs. Without the measures enacted in 2022, prices would have escalated far beyond what residents have experienced thus far.

In fact, without these measures, seven wage indexations would have been triggered between March 2022 and the close of 2024, compared to the actual count of five (including the upcoming one slated for the year's end).