“The health crisis linked to the covid-19 pandemic affected inflation during the first semester in Luxembourg as well as in the rest of the world,” a statement published by the economy ministry said.

Inflation during the first six months was down to 1%, from 2.03% for the same period last year. Petrol products became substantially cheaper (-11.3%) year-on-year.

Coronavirus undermined energy demand worldwide as transport halted and industry came to a standstill. This was exacerbated by Russia and the Organization of Petroleum Exporting Countries (OPEC) failing to agree to reduce oil production as a way to stabilise prices. Oil prices briefly dipped into the negative in April 2020.

At the same time, food prices were up 3.1% during the first half of the year in light of supply chain disruption caused by the pandemic. Electricity also became more expensive (+9.8%), which the Luxembourg Regulatory Institute (ILR) earlier this year attributed to rising energy prices for utilities companies as well as higher grid-usage tariffs and taxes.

Luxembourg in January 2020 paid indexation on wages, a mechanism to adjust salaries to inflation. But indexation is also driving up prices in certain segments, such as costs for retirement homes (+2.6%), maintenance and repairs, and childcare facilities (both +2.7%).

The low inflation rate means that the next indexation of wages is unlikely to happen prior to the last quarter of 2021 or even early 2022, national statistics office Statec said in August.