On Thursday morning, Statec published details of its updated inflation forecast. The government is set to meet with trade unions on Sunday to discuss support and solutions to cope with the acute energy crisis, with the aim to reach a tripartite agreement. On Wednesday, both trade unions and employers were presented with the updated forecast.
While inflation remained largely stable at 6.8% in August, Statec has now predicted a peak of 8.7% in January 2023. Under the line, Statec expects inflation to continue at 6.6% for the entire year, a revision from its previous forecast of 5.3%.
At present, the forecast predicts two more indexations next year, on top of one which was predicted to take place this year. In addition, there is also the delayed indexation from June 2022, moved to April 2023 in accordance with the last tripartite agreement, which must still be reckoned with.
Above all, it is the continuing rise in energy prices which is influencing inflation in the Grand Duchy. The threat of a gas shortage and potential problems with electricity supply have pushed prices up throughout Europe, with more hikes expected from October for gas. Statec predicts that electricity prices are likely to rise further in January.
In their central scenario, Statec estimates that the price of gas in winter will rise by as much as 160% compared to the summer. - some 70% more than the latest forecasts. The statistics office now also anticipates an increase of 45% in electricity.
The overall concept remains extremely volatile. Gas shortages could put further pressure on prices in the coming months and, in addition to gas and electricity, also push oil prices further upwards. On the other hand, the planned intervention in the energy market and the saving efforts in gas could also limit the impact. The exchange rate of the euro against the dollar also causes further uncertainty.
On the other hand, an end to the zero-Covid strategy in China could take pressure off supply chains and inflation could be slowed down as a result. The European Central Bank’s machinations could also help.
