Tripartite measures

Statec expects three wage indexations for 2023

With prices set to continue to rise, employees in the grand duchy are likely to get three automatic indexed salary increases in 2023. Romain Gamba / Maison Moderne

With prices set to continue to rise, employees in the grand duchy are likely to get three automatic indexed salary increases in 2023. Romain Gamba / Maison Moderne

Statec’s latest inflation forecasts suggest that a first automatic salary increase in 2023 is likely in the first quarter and a further index increase could happen towards the end of the year. This is in addition to the index due next April that was postponed from July 2022.

Statec has just published its latest inflation forecasts: 6.4% in 2022 and 3.4% in 2023. These have been revised downwards following the tripartite agreement. At the beginning of September, before the tripartite meeting, Statec’s medium scenario projected an inflation rate of 6.6% in 2022 and in 2023. The tripartite agreement was supposed to help limit the rate to 2.8% in 2023.

This ambition now looks unlikely to be achieved. As a result, price increases are expected to lead to more than two wage indexations.

The statistics institution foresees an index in the first quarter of 2023 and a second index in the fourth quarter. These will be in addition to the index that should have occurred in July 2022 but was postponed to April 2023 under a previous tripartite deal.

In a worst case scenario, the last indexed salary increase of the year would arrive even earlier, in the third quarter. We are then talking about an inflation rate of 6.5% in 2022 and 4.1% in 2023.

Statec also foresees a best case scenario that would correspond to the government’s ambitions, with an inflation rate of 6.4% in 2022 and 2.6% in 2023. And a single indexation in the first quarter of 2023, in addition to the one in April.

Five indexations avoided

This is still less than in the scenarios of the beginning of September, where Statec also forecast an indexation in November 2022.

And this does not change anything for companies, since the tripartite agreement provides for them to pay for a third indexation, knowing that the cost of a tranche has been estimated by the Union of Luxembourg Enterprises (UEL) at €800m.

The text also says that the Tripartite Coordination Committee should meet again if the situation worsens “significantly during the year 2023.” Would this increase appear to be strong enough to initiate such a meeting? The ministry of state had not yet responded to Paperjam at the time of publication of this article.

External factors could come into play

This upward revision, compared to the one made at the end of the tripartite agreement, is explained by “the prices of fuel and heating oil, which experienced unexpected increases in October, and a supposedly more persistent depreciation of the euro against the dollar.” The effect of anti-inflation measures is also “partly countered by the surge in producer prices in partner countries.”

But Statec also said that if OPEC decides to increase oil production, that could accelerate the downward trend in Brent crude oil prices. The European Commission’s emergency plan to reduce gas consumption in Europe by 15% until next spring, could also ease tensions on gas supply in the event of a cold winter. Other factors that could come into play, according to the Statec report, include the easing China’s “zero covid” strategy, which may ease supply chain tensions and slow inflation. “Finally, the disinflationary effects of monetary policy tightening could occur sooner than anticipated,” Statec says.

Statec also delivered its monthly statistics on inflation. It remains stable at 6.9% in October 2022, as in the previous month. It is mainly the prices of petroleum products that have increased by 8.8% in one month and by 35.2% in one year. As for food products, we are at +1.7% in one month, the highest increase since October 2007. Fresh vegetables (+5%), bread and cereals (+2.7%) and dairy products (+1.9%) were the main contributors to this trend.

On the other hand, the entry into force of the law on free non-formal education moderates the October index.

This story was first published in French on Paperjam. It has been translated and edited for Delano.