Salary indexation has been postponed until 2027

The Luxembourg Statistical Office (Statec) has revised its forecasts regarding the timing of the next automatic wage indexation. Whilst it was previously assumed that the next indexation might be applied in the third quarter of this year following the June increase, this scenario is now considered unlikely. Under the baseline scenario and the low-inflation scenario, the next indexation is not expected until at least the third quarter of 2027. The exception is the high-inflation scenario, which assumes an escalation of the conflict in the Middle East: in this case, an increase is possible in the fourth quarter of 2026, followed by a further increase in the third quarter of 2027.

The delay is due to the stabilisation of annual inflation, which remained at 2.2 per cent in July. Compared with June, energy prices fell by 0.4 per cent, although they are still 7.1 per cent higher than in July last year. Measures under the tripartite agreement played a key role, bringing about a reduction in the cost of diesel and petrol by five cents per litre. As a result, fuel prices fell by 1.4% over the month, whereas without government intervention they would have risen by 1.5%. Additional deflationary pressure came from the traditional summer sales, which reduced the cost of non-food manufactured goods by 2.8 per cent (with clothing and footwear falling by 14.3 per cent). At the same time, food prices rose by 0.3% over the month.

Against the backdrop of current trends, Statec has revised down its inflation forecast for 2026 from 2.5 per cent in May to 1.8 per cent. In 2027, the rate is expected to rise to 2.1 per cent, partly due to the expiry of the government’s support programme (Resilienzpak) on 31 December. This will lead to a technical rise in the index in January 2027. Nevertheless, economists are warning of risks. In addition to geopolitical tensions, which could trigger a rise in Brent crude oil prices and disruptions to supply chains, the El Niño climate phenomenon (El Niño) also poses a threat. According to forecasts by international meteorological organisations, its intensity will increase by the end of the year, which could lead to higher prices for agricultural commodities, particularly tropical crops.