Credit: STATEC

The national statistics institute STATEC has published a report in which it maintains its Luxembourg inflation forecast of 3.9% in 2023 and 2.5% in 2024.

STATEC noted that the gradual fall in the inflation rate since October 2022 has been well anticipated. The next wage indexation in Luxembourg is scheduled for September 2023. However, this indexation may not take place until October, if inflation in August is below 4.1%. A further wage indexation could be expected in the third quarter of 2024.

In July 2023, annual inflation is expected to reach 3.75%. However, this increase conceals opposing trends between oil prices and underlying inflation, according to STATEC. Since February 2023, petroleum products have been helping to bring down the general inflation rate, notably through negative base effects. However, given the fuel price rises announced at the beginning of the month, petroleum products should make less of a contribution to the fall in annual inflation in August 2023.

Core inflation (mainly excluding oil products), meanwhile, has maintained a steady pace and remains above 4.5%. This is largely the result of services prices reaching their strongest momentum in 2023 with annual inflation of 2.9%. The prices of services increased in recent months thanks to the two wage indexations in February and April 2023 but also by seasonal effects, affecting in particular air travel tickets and package holidays (+18.3% and +17.8 %, respectively, between June and July 2023).

On the other hand, food prices, which had increased sharply since Russia's invasion of Ukraine, fell for the first time in almost two years (-0.1% in July compared to June). Nevertheless, certain frictions constrained this slowdown. The reappearance of the El Niño weather phenomenon this year revitalised the surge in the prices of agricultural raw materials, just as the aggravation of geopolitical tensions affected grain exports from Ukraine.

Similar trends could be seen across the euro area. Services inflation continued to increase (+5.5% in June compared to +5% in May) and food inflation dropped (+11.6% in June compared to +12.5% in May).