On Monday 7 November 2022, Luxembourg's statistics institute, STATEC, confirmed the annual inflation rate for October 2022 at 6.85% - this rate has exceeded the 6% mark since February 2022.

The annual inflation rates from February to October 2022 averaged at 6.79%; if this remained the same for November 2022, it would be just enough to trigger the next automatic wage indexation (the six-month moving average reaching the value of 964.64 at the base index of 1948).

An automatic wage indexation is applied one month after the six-month moving average of the National Consumer Price Index (NCPI) has increased by 2.5% compared to the last wage indexation.

Chronicle.lu reached out to STATEC to learn, from a macroeconomic point of view, if such a possibility exists or not. A representative of STATEC confirmed that while the calculations are indeed correct and an automatic wage indexation would be triggered as of 1 December 2022 if the November 2022 annual inflation reaches 6.79%, this it is very unlikely.

The representative clarified that the hypothesised annual inflation rate of 6.79% for November 2022 would also mean a monthly evolution of 0.60% (compared to October 2022), which is not realistic. STATEC reasoned that in October 2022, the monthly evolution was 0.87% (compared September 2022), of which nearly a third (32.2%) can be attributed to the 13.6% increase in gas prices.

In the current scenario and in light of the decision of the tripartite coordination committee of September 2022 to cap the increase in gas prices at 15% (in relation to the average price in September 2022) for households from October 2022 to December 2023, gas prices would be moderated. In other words, gas prices would not increase in double-digit rates as it happened in October 2022 or in the previous months, and thus the monthly evolution in November 2022 will be lower than in October 2022.

The STATEC representative also underlined another limiting factor for the November inflation in relation to the law on free non-formal education, such as "Maisons Relais" (childminding services), daycare centres, mini-crèches and parental assistants, will be free during school weeks for children enrolled in basic education, starting from compulsory schooling. Since the school year started in mid-September, the data published in October reflects a marginal decrease of the tariffs for this type of service (since the consumer price index is published with a one month lag) while November data would show a further decrease (for the full month of October 2022 with free non-formal education).

Finally, the prices of food products and non-alcoholic beverages increased by 10.49% in October 2022 compared to October 2021 (1.77% monthly increase), an exceptional increase in prices, and STATEC does not foresee such price increases taking place in November 2022 (inflation data to be published in December 2022).

In effect, according to STATEC, together these three factors will result in a lower monthly evolution, which will make it unlikely that the automatic wage indexation threshold will be reached with the November results (and which could then trigger a new wage indexation for December 2022).

This confirms STATEC's forecast that the next automatic wage indexation would likely happen in the first quarter of 2023, which in addition to the one scheduled for April 2023 would mean that at least two wage indexations are due in the first half (H1) of 2023.