Inflation in Luxembourg will be 2.2 per cent in 2025 and 1.8 per cent in 2026
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According to STATEC, inflation in Luxembourg will be 2.2 per cent in 2025 and will fall to 1.8 per cent in 2026. This forecast takes into account the impact of the energy market, weakening economic activity and global macroeconomic trends.
The country's inflation rate dipped below 1% in the last months of 2024, but rose again to 1.9% in January 2025 due to the removal of energy subsidies and rising energy prices. The cost of gas jumped 35 per cent, electricity rose 24 per cent and petroleum products rose 4.4 per cent after a sharp drop at the end of 2024.
Factors influencing inflation
- Energy sector: the removal of price controls on gas and electricity raised inflation in early 2025, but energy prices are expected to fall by 2026.
- Consumer goods: prices of manufactured goods and food remain stable, increasing by 0.3 per cent and 0.6 per cent respectively.
- European trend: in the euro area, inflation in January 2025 was 2.5 per cent, up from 2.4 per cent in December, mainly due to higher energy prices.
STATEC forecasts two indexations in 2025-2026, with the next wage increase scheduled for the second quarter of 2025. Additional revision of indexation is possible depending on fluctuations in energy prices.
In 2026, inflation will slow to 1.8 per cent due to lower energy prices. However, the forecast may be affected by changes in the euro exchange rate and the global economic situation. Oxford Economics expects the euro/dollar exchange rate to fall to 1.04 USD/EUR in 2025 and 1.06 USD/EUR in 2026, which will increase the cost of imported oil.
STATEC considers two scenarios for energy prices:
- Optimistic scenario: electricity price growth will be limited to 5%, gas will become 13% cheaper, and oil will become 21% cheaper. In this case, no indexation will be required.
- Negative scenario: electricity prices will increase by 32%, oil prices will rise by 13% and gas prices by 1%. In this case, salaries will be indexed additionally in Q4 2025 and Q3 2026.
Luxembourg is moving towards slowing inflation, but energy factors remain a key risk. If gas, oil and electricity prices remain high, additional wage indexations and macroeconomic policy adjustments are possible.
