Indexation divides economists

In the spring of 2023, inflation is finally showing signs of slowing down after a historic surge. In June 2022, the inflation rate reached 7.4% compared to the same period of the previous year, a level that had not been reached for 40 years according to the Statec – without, however, matching the record of 10.7 per cent recorded in 1975. This is enough to make the price index counter go wild, leading to the triggering of three tranches in 2022 (one of which was paid in April 2023) and two more in 2023.

This huge surge, fuelled by energy prices that have risen by more than 50 per cent in one year, has unsurprisingly reignited the debate in the Grand Duchy on automatic wage indexation and its viability in a modern economy, when the vast majority of countries that had it have abandoned it. International bodies, from the International Monetary Fund (IMF) to the Organisation for Economic Co-operation and Development (OECD) and the European Commission, have repeatedly urged Luxembourg to abandon it. Last November, the OECD's secretary general Mathias Cormann made the same plea during the presentation of an economic study on Luxembourg. "Automatic indexation without taking the context into account could harm the country's competitiveness, " he said.