High prices could soon trigger an automatic 2.5% wage increase to adjust salaries to inflation, Statec said on 16 February Photo: Shutterstock

High prices could soon trigger an automatic 2.5% wage increase to adjust salaries to inflation, Statec said on 16 February Photo: Shutterstock

Wages could be adjusted to inflation in spring and again before the end of the year, national statistics office Statec said on Wednesday, after high consumer prices last triggered the automatic indexation of wages in October.

Inflation in January grew 0.1% compared to the month before, Statec said, and the inflation rate was at 3.6% year-on-year. Petrol prices at 12.3% price growth pushed up inflation last month. Over the past year, heating oil prices, for example, increased 80.4%.

High inflation in Luxembourg comes hand in hand with the indexation of wages, a 2.5% salary increase to make up for the loss in household purchasing power. The grand duchy is one of only three EU countries--together with Belgium and Cyprus--where the price indexation of wages is automatic.

The last indexation payment was triggered at the start of October last year and the next could be due during the second quarter of 2022, Statec said. While the government has issued its unequivocal support for the measure, it has angered businesses who face higher costs on multiple fronts.

Both the UEL business union and the Chamber of Commerce have said that indexation should be abolished or replaced with a more targeted mechanism that supports low-income households but excludes top earners.

“We do not find it logical that indexation increases the salary of a person on minimum wage by €550 per year while a person at the contribution ceiling (€11,000) will see their salary increase by €3,300. As a result, this indexing system increases social inequalities,” the UEL .

Manual labour-intensive businesses are being crippled financially, the UEL warned, adding that they also face higher costs, for example for raw materials.

The Chamber of Commerce, too, said the scheme is and harming companies. In addition to limiting indexation to low income brackets, it suggested amending the basket of goods, for example excluding volatile fossil fuel prices.

Statec predicts different scenarios for the months to come. In case high inflation persists, a second indexation payment could be triggered at the end of this year. More likely, the following indexation payment will be due in the first quarter of 2023. Should prices drop, the next indexation payment after spring this year would not be due until 2024.

Lawmakers and the government last week debated household purchasing power in parliament in light of climbing prices. The majority parties--the DP, LSAP and déi Gréng--passed a motion calling on the government to pay a to households to alleviate the burden of rising energy prices, and to uphold the indexation mechanism.