Inflation forecast : 1.8% for 2026 and 2027

At the beginning of 2026, falling energy prices significantly slowed the inflation rate compared with the last quarter of 2025. While government measures are pushing electricity prices down in 2026, the decline in oil and gas prices on international markets is expected to keep petroleum product inflation at a low level through to the end of 2027. STATEC is therefore forecasting inflation of 1.8% for this year and for 2027. The next indexation adjustment is scheduled for the second quarter of 2026, followed by another in the third quarter of 2027.

Annual inflation rate and contributions

_{Source: STATEC (forecasts as of 09/02/2026)}

Inflation expected to fall below 2% in Luxembourg in 2026

While the strengthening of favourable base effects linked to energy products had sharply driven up inflation during the final months of 2025 (with energy alone contributing 0.9 percentage points to annual inflation in December 2025), the simultaneous drop in electricity and petroleum product prices helped cut annual inflation by more than half in January, bringing it down to 1.3%.

These negative base effects tied to the energy component are expected to continue slowing inflation through to 2027, for several reasons. First, the government’s contribution to electricity prices should lead to a lasting reduction in household tariffs in both 2026 (-10%) and 2027 (-7%)[1]. Second, crude oil prices are expected to keep falling in 2026 (-14%, to USD 60 per barrel) and in 2027 (-6%, to USD 56 per barrel) due to a global oversupply, offsetting any potential inflationary impact of geopolitical tensions on supply chains[2]. In addition, Europe’s oil bill should benefit from the appreciation of the euro against the US dollar. Finally, falling gas prices on futures markets should feed through to Luxembourg’s tariffs in 2026 (-10%) and in 2027 (-5%). As a result, energy prices in the Grand Duchy are projected to decline by 6.3% in 2026 and by 3.5% in 2027.

The January 2026 projections by Oxford Economics, which underpin STATEC’s current forecast, incorporate several upward pressures and revise euro area inflation for 2026 from 1.5% to 1.7%. In this context, underlying inflation in Luxembourg is expected to remain high in 2026 (2.2%), driven notably by expected increases in food prices and service-sector inflation. Unfavourable weather conditions, combined with structural supply-side factors, represent an upward risk for food inflation, which STATEC anticipates at 2.8% in 2026, before easing to 2.4% in 2027. Meanwhile, service inflation is projected to reach 3.1% in 2026, before moderating to 2.8% in 2027.

Overall, headline inflation in Luxembourg is expected to be 1.8% in 2026 and to remain at that level in 2027. According to these forecasts (forming STATEC’s central scenario), the next wage indexation adjustment would take place in the second quarter of 2026, followed by another tranche in the third quarter of 2027.

[1] The measures include a state contribution to network usage costs as well as support for the compensation mechanism system for the years 2026 and 2027.

[2] Geopolitical tensions that could weigh on supply include US threats against Iran, recent events in Venezuela, the extension of sanctions against Russia, and unrest in the Middle East. However, none of these developments is expected to fundamentally alter the overall situation, as the oil market remains sustainably oversupplied.

Forecasts based on alternative energy price assumptions

<sup>Source: STATEC (forecasts as of 09/02/2026)
* In Luxembourg, underlying inflation includes the price of electricity.
** These forecasts incorporate an increase of EUR 5 per tCO₂e in the CO₂ tax in both 2026 and 2027.
*** Average prices including VAT for a residential customer in Luxembourg with an annual consumption of 2,426 m³ of gas and 3,901 kWh of electricity. These prices are calculated on the basis of assumptions from the Ministry of the Economy regarding electricity: for 2026 and 2027, a return of the contribution to the compensation mechanism to –0.001 EUR/kWh, as well as a reduction of around 35% in network usage tariffs in 2026 compared with 2025.</sup>

Two alternative scenarios for energy prices

Two alternative scenarios are constructed based on historical deviations in the electricity, gas and Brent crude oil markets (the latter influencing fuel and heating oil prices). Taking into account the measures in place (notably the identical electricity price across scenarios for 2026), the high and low electricity scenarios only diverge marginally in 2027, with respective decreases of 6% and 8%.

The high Brent price scenario incorporates upward risks linked to the resurgence of geopolitical tensions, possible supply disruptions, and stronger‑than‑expected global demand, with Brent prices rising by 11% in 2026 and by 13% in 2027. Conversely, the low scenario reflects a persistently oversupplied global market, continued growth in non‑OPEC production, and weaker demand in a sluggish global macroeconomic environment, further amplified by the long‑term effects of the energy transition, with Brent prices falling sharply in 2026 (-27%) and 2027 (-19%).
Recent developments highlight major asymmetries in gas prices. Upward risks stem from Europe’s low storage levels — recently reported to be at their lowest seasonal point in several years — and tight balances following faster‑than‑usual winter withdrawals. If compounded by exceptionally cold weather conditions or new supply interruptions (such as disruptions to US liquefied natural gas (LNG) production during extreme cold spells in January), gas prices could rise well above their baseline level. Europe’s continued reliance on US LNG, which now accounts for a significant share of European imports (around 27% in 2025), creates vulnerability to fluctuations in US export volumes. In the high scenario, gas prices would rise by 4% in both 2026 and 2027 (compared with -10% and -5% respectively in the central scenario). In the low scenario, gas prices would fall by 14% in 2026 and by 10% in 2027.

In the high‑inflation scenario, with inflation reaching 2.5% in 2026 and 2.4% in 2027, the next wage indexation adjustment would occur in the second quarter of 2026, with another tranche one year later. In the low scenario, where inflation would stand at 1.4% in both 2026 and 2027, only one indexation adjustment is expected, in the third quarter of 2026.