Credit: STATEC

The national statistics institute STATEC has published its latest inflation forecasts, predicting inflation of 2.2% for Luxembourg in 2024.

As elsewhere in the eurozone, the slowdown in inflation in Luxembourg was stronger than expected at the end of 2023. STATEC has thus lowered its inflation forecast for 2024 to 2.2% and predicted that a new wage indexation would be triggered only in the last quarter of the year.

The lifting of price caps at the turn of 2025 is expected to lead to an increase in gas and electricity prices, pushing inflation to 3.3%. Wage indexation is foreseen for the third quarter of 2025.

Inflation has continued its downward trend in the Grand Duchy with 3.5% over one year in January 2024. According to STATEC, this decline results from the drop in the price of petroleum products (-4.4% in January, compared to +3.9% a year earlier) coupled with a gradual slowdown in underlying inflationm which stood at 4% in January (compared to 4.8% a year earlier).

In recent months, the decline in inflation has been faster than expected. Petroleum products are showing negative annual rates with average inflation of -8.2% in 2023 (compared to +42% in 2022) reflecting the relaxation on energy markets in Europe. In terms of underlying inflation, the current slowdown was notably supported by the lesser increase in the prices of food products after the peak last March. In January, food inflation (6.4% over one year) was the lowest in nineteen months.

The prices of services, for their part, showed for the first time in a year a slight decline in inflation in January (4.7%, a drop of 0.1 % point compared to December). Similar trends have been observed across the eurozone, where inflation is falling sharply, reaching 2.8% in January (compared to 8.6% a year earlier).

After the lifting of price caps, scheduled for 1 January 2025, and in the absence of new measures, inflation is expected to rebound and remain above 3% throughout next year - mainly due to electricity and gas price increases.

In 2025, STATEC predicts an increase in the price of gas and electricity of 17% and 60% respectively. This forecast results directly from the evolution of prices on derivative markets and the method of supply of energy suppliers in Luxembourg.

Reflecting the stronger-than-anticipated slowdown in inflation at the end of 2023 as well as new Oxford Economics hypotheses, STATEC has revised its inflation forecast for this year to 2.2% (compared to 2.5% previously). Next year, inflation is expected to rise to 3.3%. Core inflation has been revised slightly upwards to 2.8% in 2024 (compared to 2.7% previously) and to 3.0% in 2025.