Buoyed by the fall in oil prices (-4.4% in January, compared with +3.9% a year earlier) and by the gradual slowdown in core inflation (4% in January, compared with 4.8% a year earlier), inflation is falling in Luxembourg. Statec, the national statistics bureau, now expects prices to rise by 2.2% in 2024 and 3.3% in 2025. By way of comparison, for 2024 and 2025, inflation in the eurozone should remain above the European Central Bank’s target of 3.1% this year and 2.3% next year.

Gas and electricity

The rebound in 2025 in Luxembourg is linked to the lifting of tariff shields on gas and electricity prices, scheduled for 1 January 2025. Without these shields, inflation in the grand duchy would have reached 7.6% in 2022, 6.6% in 2023 and 3.4% in 2024, with seven theoretical indexations (automatic rises in salaries and pension payments linked to inflation) between March 2022 and the fourth quarter of 2024. On the downside, Statec forecasts a 17% rise in gas prices and a 60% rise in electricity prices by 2025.

As far as underlying inflation is concerned, although Statec has revised its forecast slightly upwards for 2024, from 2.7% to 2.8%, the trend is for the brakes to be applied. “The slowdown underway has been underpinned in particular by the slower rise in food prices following last March’s peak,” explains Statec. “In January, food inflation (6.4% year-on-year) was the lowest for 19 months. Service prices, meanwhile, showed a slight fall in inflation for the first time in a year in January (4.7%, down 0.1 percentage points on December). Similar trends can be seen across the eurozone, where inflation fell sharply to 2.8% in January, compared with 8.6% a year earlier.”

An index this year and next

According to the central scenario inflation forecasts, the next indexation will take place in the fourth quarter of 2024, with another foreseen for the third quarter of 2025.

This article in Paperjam. It has been translated and edited for Delano.