Luxembourg inflation outlook halves after energy price cap

Luxembourg’s national statistics agency Statec has slashed its inflation forecast for next year by more than half, following the government’s announcement of support measures to assist households through the cost-of-living crisis.

Inflation in 2023 is now expected to be 2.8%, Statec said in an update issued on Tuesday, in a major reversal of its previous forecast of 6.6% issued just a fortnight ago, which was itself a hike from an earlier prediction of 5.3%.

Statec said it was lowering its forecast due to the recent state aid package unveiled by the government, which includes limiting gas price increases to 15% of their current levels, cutting VAT by one percentage point and freezing electricity prices.

The new tripartite deal agreed between government, employers and unions will “temporarily remove the uncertainty surrounding energy prices in Luxembourg and will help slow consumer prices”, Statec said.

The statistics agency also predict slightly lower inflation for this year, at 6.2%, down from a forecast of 6.6% before the government measures were announced. Russia's war against Ukraine and soaring energy prices are continuing to drive up inflation worldwide.

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