Consumer price index and inflation page
What is inflation?
Inflation is defined as the general rise in prices in an economic area. It is measured by consumer price indices. In Luxembourg, the consumer price index is calculated using a methodology harmonised at European level and published monthly by STATEC.
How does inflation affect us and why is that? (Video/Audio YouTube)
STATEC produces two different indices
The Harmonised Consumer Price INDEX (HICP) is the official measure of inflation in the European Union, compiled in accordance with the provisions of Regulation (EU) 2016/792 and Regulation (EU) 2020/1148. These two European regulations specify the methodology to be used to ensure that the index remains comparable from one member country to another. This is why the HICP is used to compare inflation trends in different countries, as well as to calculate aggregate inflation, particularly for the Eurozone or the European Union as a whole.
The National Consumer Price Index (NCPI) is the measure of national inflation. It differs from the HICP only in a different weighting scheme. The weights of the NCPI are based on the final consumption expenditure of residents on national territory, whereas the HICP takes account of expenditure by both residents and non-residents. As a result, certain items, such as petroleum products or tobacco products (products for which the expenditure of cross-border commuters is higher in Luxembourg) have a lower weight in the NCPI than in the HICP. The NCPI is used in the context of the automatic wage indexation mechanism.
The NCPI is divided into 12 divisions, weighted according to their relative importance in household final consumption expenditure. The weighting scheme is revised annually to take into account the changes of the structure of consumption and is published by Grand-Ducal regulation on the advice of the Economic and Social Council (Conseil économique et social - CES) and the CPI Commission:
Each division contains several groups, classes and sub-classes. In total, the index is divides into 308 different positions, such as "household and special breads", "frozen vegetables", "heating oil", "dental services", "package holidays by air", etc.
As it is impossible to track the prices of all goods and services, the CPI is based on a sample. For each product category, a sample of representative products is constructed. Within each sample, as many different products and services as possible are tracked to reflect the wide range of products on offer on the market. For example, the "bread" sample includes a multitude of products ranging from €1.90 to €5.10. For 'cars', prices are tracked for both small cars and large SUVs.
Division |
Share in 2023 (%) |
|
01 |
Food products and non-alcoholic beverages |
12.9% |
02 |
Alcoholic beverages and tobacco |
3.4% |
03 |
Clothing and footwear |
6.2% |
04 |
Housing, water, electricity, gas and other fuels |
16.4% |
05 |
Furnishings, household equipment and routine household maintenance |
9.8% |
06 |
Health |
2.6% |
07 |
Transport |
13.3% |
08 |
Communications |
1.8% |
09 |
Recreation and culture |
7.9% |
10 |
Education |
1.4% |
11 |
Hotels, restaurants and cafés |
7.5% |
12 |
Miscellaneous goods and services |
16.7% |
What is the sliding salary scale-
« Index » ?
The sliding salary scale is the mechanism for automatically indexing wages to inflation in Luxembourg. In Luxembourgish, it is often referred to as the "Index". The mechanism is designed to preserve employees' purchasing power. It was first introduced in 1921 for railway employees and civil servants. It was extended to the entire economy in 1975. An wage indexation on the sliding salary scale is triggered when the half-yearly average of the consumer price index (base 100 at 1.1.1948) differs by 2.5% from the maturity rating (cote d’échéance).
How is the consumer price index calculated?
The basic principle is to monitor price evolutions for the same product or service in the same outlet, to be able to calculate relevant price evolutions. STATEC tracks the prices of different brands, different types, different sizes and prices in different shops.
The price collectors visit 580 or more points of sale, contact them by e-mail and telephone, or check prices on websites. Every month, around 7,700 prices of various goods and services are collected.
Since 2018, scanner data has been included in the regular production of the consumer price index. These are electronic files sent by several supermarkets directly to STATEC. With this new data source, around 90,000 additional varieties are included in the calculation of the CPI (for the year 2023). STATEC will continue to exploit this data source and extend its coverage in the coming years.
How is a new application rating activated?
A new wage indexation is triggered if the half-yearly average of the general index linked to the 1.1.1948 base shows a difference of 2.5% from the last maturity rating (cote d’échéance).
The general index linked to base 1.1.1948 is derived from the NCPI base 2015 and multiplied by a specific adjustment coefficient. This adjustment coefficient is a constant and only changes when the law forsees the neutralisation of certain price increases in terms of their effect on the sliding salary scale (e.g. tobacco excise duty, CO tax2 ). The half-yearly average of the linked index is the average of the six most recent indices, base 100=1.1.1948. If this half-yearly average differs by 2.5% from the maturity rating, a new application rating (cote d’application) comes into force the following month, which implies a 2.5% adjustment to wages, salaries and pensions. The new application rating is valid from the date of publication, not just at the end of the month.
Why have there been so many wage indexations since the end of 2021?
At the end of 2021 and the beginning of 2022, the Eurozone and Luxembourg were faced with a rapid acceleration of inflation, leading to a rise in prices, and more specifically in the price of petroleum products. In April 2022, petroleum product prices were 59.4% higher than in April 2021. For gas, the increase reached even 84%.
This trend in petroleum product prices also has an impact on the annual inflation rate, which reached 7.4% in June 2022, the highest rate since May 1984.
The rise in oil prices leads to an increase in the prices of various other products, thus pushing up the price index. Since the end of 2022, petroleum product prices have been on a downward trend (-17.4% in May 2023 compared with May 2022), while food prices have risen sharply (+13.3% in March 2023 compared to March 2022). This general rise in prices triggers several wage indexations.
Data
Current inflation figures for Luxembourg :
- National Consumer Price Index (IPCN) (short-term indicator - A1)
- Harmonized Consumer Price Index (HICP) (short-term indicator - A1bis)
- Weighting scheme and reference positions
- User guide « short-term indicator - A1» (in French) (Pdf, 580 Kb)
Historic tables :
Glossary
Inflation = rise in prices in an economic area
Consumer Price Index (CPI): official measure of price changes for a basket of goods and services.
National consumer price index (NCPI): measure of price changes in Luxembourg. The NCPI is limited to the resident population and excludes consumption by non-residents (tourists and cross-border commuters).
The sliding scale of salaries: "Den Index".
Price Index Commission: advises and assists STATEC in establishing CPIs. The commission meets every month before the index is published.
The commission is made up of the following bodies: CGFP, LCGB, OGBL, Chamber of Agriculture, Chamber of Trades, Chamber of Commerce, Ministry of the Economy, Statec.
Economic and Social Council (CES): each year, the CES issues an annual opinion on the list of reference positions for the index and their weighting.
STATEC produces a monthly consumer price index
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