Inflation forecast: 1.8% for 2026 and 2.1% for 2027

The conflict in the Middle East de-escalated in June, leading to a rapid decline in energy prices, before a new rise in oil and gas prices was observed in July. Of the twelve months of 2026, seven are now known, and the observed prices are lower than the assumptions made in the spring. The measures in the Resilienzpak are also expected to slow inflation this year. Against this backdrop, STATEC is lowering its forecast for headline inflation to 1.8% for 2026 and 2.1% for 2027. However, significant geopolitical uncertainties remain. In both the central and low scenarios, the next index-linked adjustment would occur in thethirdquarter of 2027. A surge in energy prices comparable to that in the high scenario, however, would trigger an adjustment as early as the fourth quarter of 2026. 

Annual inflation rate and contributions

_{Source: STATEC (forecasts as of August 5, 2026)} 

The Energy Shock’s Impact Remains Limited

When STATEC released its latest inflation forecasts in May 2026, the international environment was dominated by the blockade of maritime traffic in the Strait of Hormuz. The assumptions made at the time posited a gradual pass-through of rising oil prices to overall consumer prices. Three months later, however, this mechanism has materialized only to a limited extent. Energy prices have certainly experienced sharp fluctuations and are still up 10.0% year-over-year in July (according to preliminary estimates) in the eurozone. But no spillover to other prices is evident at this stage in the eurozone: food inflation fell to 1.2% in July, its lowest level in five years, while core inflation remained around 2.5%.

This slower transmission, combined with the decline in oil prices following the reopening of the Strait in June, is directly reflected in the prices already observed in the in the Grand Duchy. Total inflation stood at 2.2% in July—below the euro area’s 2.9%. In Luxembourg the rise in energy prices slowed to 7% (compared with 9% in June) and food inflation has stabilized around 1.5% since June (compared with nearly 3% at the start of the year).

In this context, the forecast for 2026 has been revised downward from 2.5% to 1.8%, representing a downward revision of 0.7 percentage points compared with May. This breakdown is as follows: -0.3 percentage points are attributable to prices observed between May and July, which rose less sharply than anticipated; -0.3 percentage points to the measures in the Resilienzpak; and -0.1 percentage points to the new international assumptions from Oxford Economics. Food inflation is projected to reach 2.1% in 2026 and 2.4% in 2027. Services and non-energy industrial goods are expected to rise moderately, from 2.2% to 2.8% and from 1.0% to 1.4%, respectively, in 2026 and 2027.

Forecasts based on alternative assumptions

Source: STATEC (forecasts as of August 5, 2026)

* These forecasts include a 5 EUR/tCO₂e  increase in the CO_₂ tax in 2027. 
** Average prices, including tax, for a residential customer in Luxembourg with an annual consumption of 2,426 ^m³of gas and 3,901 kWh of electricity. 

The Resilienzpak: A Confirmed Impact on Energy in 2026

Faced with the risk of a prolonged energy price shock, a set of measures—collectively known as the Resilienzpak—was adopted as part of the Tripartite agreement, aimed at slowing inflation and preserving household purchasing power and business competitiveness.

These measures are being implemented in two phases: a reduction of 5 euro cents per liter on diesel and gasoline starting in July, followed by a reduction of 15 euro cents per liter on heating oil, 4 euro cents per kWh on electricity, and 15 euro cents per cubic meter on natural gas starting in August, all based on prices including tax. They limit the rise in energy prices in 2026 (1.5%, compared to 6.0% in a scenario without these measures) and reduce overall inflation by 0.3 percentage points—a figure consistent with that reported during the tripartite discussions, and part of which is now directly observable in the July index[1] .

Since these measures are limited to December 31, 2026, their expiration will result in an increase in the index level in January 2027. Consequently, total inflation for 2027 is raised by 0.3 percentage points, to 2.1%.

Oil price assumptions are on the decline, but there will be no immediate return to pre-conflict levels

STATEC’s baseline scenario is based on that of Oxford Economics, which projects an average Brent price of approximately $83 per barrel in 2026, compared with nearly $90 in the May projections. These projections assume that prices will continue to decline in the second half of 2026 and then in 2027.

Brent, however, is expected to remain consistently above its pre-conflict levels[2] . The trend in Brent futures prices for 2027 provides a useful benchmark, independent of the assumptions used by STATEC. Four key milestones mark this trend:

• Before the conflict (January 2026), markets anticipated Brent at around $60 per barrel in 2027.
• During the closure of the Strait (May and early June), this expectation reached approximately $85 at the start of the period, representing a risk premium of more than $20 that was permanently factored into the 2027 outlook.
• Following the agreement between the United States and Iran and the resumption of maritime traffic, expectations for 2027 were lowered by about $10, to roughly $75.
• Since the new closure at the end of July, they have risen by about $5, to nearly $80.

Two key insights emerge. First, the markets have retraced only about half of the June move: expectations for 2027 remain about $5 lower than those prevailing at the time of the May forecasts. The downward revision of energy assumptions for 2027 is therefore consistent with the market valuation following the strait’s reclosure.

Second, the contrast with expectations for 2026 is stark: these have been raised by $10 to $15 since the latest closure, rising from about $70 to roughly $85. The markets thus view the re-closure as a shock concentrated in the short term, with limited persistence through 2027.

Expectations for 2027 remain nearly $20 higher than their pre-conflict levels. The shock has therefore not been erased: a substantial risk premium remains embedded in prices at that horizon. The stability of the 2027 inflation forecast, excluding policy measures, reflects a rebalancing—lower energy assumptions, offset by a less favorable outlook for food prices.

In 2027, uncertainty is shifting toward food and natural gas

Prices for nitrogen fertilizers—for which natural gas is a key input—remain above their 2025 levels. Added to this are the heat waves of spring and summer 2026 and the development of an El Niño event that international meteorological agencies anticipate will range from strong to very strong by the end of the year, pushing up risks to agricultural commodity prices, primarily for tropical crops.

The second source of uncertainty concerns natural gas. The fill rate of European storage facilities remains below its seasonal average as the heating season approaches, and the availability of LNG from the Gulf continues to depend on navigation conditions in the Strait[3] . This situation poses an upside risk to prices starting in the winter of 2026–2027.

Two Alternative Scenarios

The base-case scenario is supplemented by two variants. These are not constructed symmetrically and therefore do not define a probability range: the high-case scenario corresponds to a comprehensive macroeconomic scenario of prolonged conflict, while the low-case scenario is a technical variant based solely on a more favorable trend in energy prices.

The high-case scenario is based on a sustained escalation of the conflict, accompanied by a prolonged closure of the Strait of Hormuz and persistent disruptions to the region’s major shipping routes. The price of Brent crude would average nearly $163 per barrel in thethirdquarter of 2026. Beyond the energy sector alone, disruptions to supply chains and rising transportation costs would fuel more widespread inflationary pressures: inflation would reach 4.5% in the eurozone in 2026.

In Luxembourg, energy prices are projected to rise by 14.4% in 2026. Second-round effects would begin to appear in food prices starting in the fourth quarter of 2026: food inflation would reach 2.2% in 2026 and then 3.6% in 2027, while inflation for services would reach 3.5% and that for non-energy industrial goods would reach 2.0% in 2027. Headline inflation is projected to stand at 2.9% in 2026 and then 3.2% in 2027, with an index adjustment in the fourthquarter of 2026 and another in thethirdquarter of 2027.

The low-scenario, by contrast, is based on a faster easing of energy markets. Energy price inflation is projected to be −0.4% in 2026 and to decline further in 2027 (−3.2%). The spillover to the rest of the economy would remain limited. Headline inflation would reach 1.7% in 2026 and then 1.8% in 2027, with the next index-linked adjustment taking effect in thethirdquarter of 2027.

[1] Finally, the measures are expressed as fixed amounts per unit consumed: the percentage reduction they provide therefore automatically decreases if energy prices rise. The 0.3 percentage point effect applies to the baseline scenario and would be smaller in the high-scenario.

[2] These assumptions were finalized on July 15, 2026. Since then, prices have rebounded sharply, with Brent returning to around $90 at the end of July and European gas prices rising by about 20% over the month, amid renewed disruptions to traffic in the strait and difficulties in replenishing European stocks ahead of winter. However, the impact of this rebound on inflation forecasts appears limited. STATEC simulations conducted during the tripartite negotiations indicate that if Brent remains around its price since the second^e  half of July (USD 100 per barrel) through December would push inflation in 2026 to 2.1%, without affecting the schedule for the next index-linked payments (the next indexation is still scheduled for the 3^e  quarter of 2027).

[3] While Europe’s direct exposure to LNG imports from the Gulf remains limited, the availability of these volumes continues to depend on navigation conditions in the Strait of Hormuz. Any prolonged disruption to maritime traffic could increase Asian demand for alternative cargoes on the global LNG market, thereby exerting upward pressure on gas prices in Europe.