Luxembourgers have started earning more money

Since the beginning of 2024, the disposable income of Luxembourg households has been rising steadily. In the second quarter, the increase was 0.4% per capita, fuelled by two key factors: wage indexation and low inflation. These conditions provide households with not only more purchasing power but also room for savings.

Despite the increase in incomes, real expenditures are growing at a minimal rate - by only 0.1% in the second quarter of 2024. Households prefer to save due to economic instability and fears of future deterioration. Spending is most affected by service categories such as tourism and childcare, as well as energy, whose prices have fallen due to the fall in the value of oil.

A high savings rate is becoming an important characteristic of the Luxembourg economy. Although the country is not among the leaders in terms of savings rate in the euro area (such as Germany with 20% or Austria with 19%), it maintains a steady performance. Savings activity is influenced by the same factor that restrains consumption: a cautious approach in the face of economic uncertainty.

Inflation in Luxembourg has fallen to 1.0% by October 2024, the lowest rate in three years. This has a positive impact on real incomes, especially when inflation rates remain higher in other eurozone countries. The biggest price deceleration is observed in the services and energy categories, which further stimulates purchasing power growth.

The financial situation of Luxembourg households remains robust, but subdued consumption raises questions about the prospects for domestic economic growth. On the one hand, low inflation and stable incomes provide the basis for long-term stability. On the other hand, consumer wariness may slow down the country's economic development. Analysing income inequality remains an important aspect, which may determine further economic policy.