Luxembourg's annual inflation rate has shown a continuous decline, reaching 3.6% in March 2023. But statistics formed a bipolar picture: while gas prices drop, food costs get higher.
This trend is attributed in part to the reduction in fuel prices, which has resulted in a rise in the cost of living, albeit at a slower pace.
The Statec, Luxembourgish national statistics institute, reported that the price of housing and utilities has decreased by 0.10% on an annual basis, while transport prices have increased by 0.21%. As well as education expenditure – by 0.6%. Interestingly, the price of alcoholic beverages and tobacco increased by 5.29%, along with furniture (+7.49%) and food and non-alcoholic beverages (+13.27%). The latest category has shown a rapid spike in cost.
According to the Statec, vegetable prices have grown by 21.25%. Followed by dairy products and eggs (+18.39%), and bread and cereals (+13.33%), these are the most influenced by inflation categories of purchases.
Meanwhile, the price of liquid fuels has plummeted by a quarter (-25.31%), with gas and fuels also experiencing significant declines. The STATEC noted that inflation is affected by the surge in prices of services that continue to increase. Price increases were observed in the restaurant sector (+0.6%) and for daycare centers for children (+2.2%) too.
The downward trend in inflation in Luxembourg can be explained by various factors. Firstly, the decrease in fuel prices has contributed to the decline in the inflation rate, as fuel is an essential component of many products and services. This decline can be attributed to global trends, such as the oversupply of oil in the market. Secondly, global supply chain disruptions have resulted in a shortage of certain goods, leading to price increases. In Luxembourg, the shortage of fresh vegetables has contributed to the significant increase in their prices.
The increasing demand for certain services due to the pandemic has resulted in price hikes last few years. For example, the demand for daycare centers and homes for children has increased as more parents have had to work remotely, leading to an increase in their prices. Similarly, the demand for medical services has increased due to the pandemic, resulting in higher prices. and didn't go down after that.
Policies implemented by the government and the European Central Bank (ECB) have also influenced the inflation rate in Luxembourg. The ECB's quantitative easing policies, which have resulted in increased spending and borrowing, have contributed to the rise in prices in general. On the other hand, the government's policies, such as the reduction in value-added tax (VAT) for certain goods and services, have helped to mitigate the rise in prices. While the inflation rate has shown a decline, it is important to continue monitoring it and implementing policies to ensure that it remains stable and sustainable.