Writing in his blog, Carlo Thelen said that the automatic wage indexing mechanism, designed to keep earnings in line with inflation, could “hamper economic activity in Luxembourg.”

National statistics body Statec forecasts that rising annual inflation (2% in Germany in April and 1.2% in Belgium and France) means the index could be triggered as early as the end of 2021, when the country is still in recovery mode. Thelen wrote: “In times of high inflation, companies are doubly penalised: by the rise in raw material prices and by an increase in wage costs through indexing.”

He added that a 2.5% increase in labour costs would come on top of the 2.8% increase in the minimum social wage introduced from 1 January 2021, which could hit hard labour-intensive sectors. High-skilled sectors would also be impacted because of the shortage of staff. “The shortage of labour, in addition to the comparatively higher wage costs, puts local companies at a disadvantage compared to their foreign counterparts and may hamper the development of economic activity in Luxembourg,” he wrote.

Thelen moots switching to a sustainable national consumer price index, “excluding from the mix all fossil fuel products […] while providing adequate compensation for the least affluent households through a targeted increase in the cost-of-living allowance (e.g., to compensate for increases in the price of heating products).”

Luxembourg first introduced a consumer price index in the 1920s, adopting the current system in 1997. Issued monthly, the index monitors the prices of a basket of goods and services. Since 2000, it excludes the consumer spending of non-residents in Luxembourg.