What is salary indexation in Luxembourg and how does it work?
The wage adjustment is triggered when the weighted moving average of the CPI for the last six months reaches or exceeds a predetermined maturity rate. Each time this occurs wages and benefits are automatically increased by 2.5%.
The indexation process is structured around three fundamental concepts: the application rate, the maturity rate and the moving average of the CPI for the last six months.
- Application rate: this is the coefficient used to calculate the adjustment of salaries, pensions and other social benefits in accordance with changes in the National Consumer Price Index (CPI). This coefficient determines the exact percentage by which income must be increased when the indexation mechanism is triggered after exceeding the 2.5% inflation threshold.
- Maturity rate: this is the threshold that the CPI moving average must reach to trigger wage indexation, this threshold acts as a trigger for the automatic process. Once this threshold is reached, a new maturity rate is calculated by adding 2.5% to the previous maturity rate.
- Moving average of the CPI for the last 6 months: this is a weighted average that is calculated using the CPI values for the last six months. This approach eliminates temporary or seasonal distortions that may affect prices.
The process can be summarized as follows: STATEC establishes the level of the consumer price index each month, and these monthly indices are used to calculate a half-yearly “moving average” covering the last 6 months available, including the reference month. As soon as this moving average reaches or exceeds the maturity rate, which is in fact the last maturity rate increased by 2.5%, the sliding scale mechanism for wages and salaries is automatically triggered, from the following month only, by the entry into force of a new application rate, which is itself 2.5% higher than the previous application rate.
For a better understanding, let's look at an example with the current application rate and maturity rate data, let's assume that a worker has a gross monthly salary of 3,000 and we have the following values:
- Current application rate: 944.43.
- Current maturity rate: 988.79.
- Condition for triggering indexation: the semi-annual moving average of the CPI must exceed 1013.51 (988.79 × 1.025).
When the CPI moving average reaches 1013.51, indexation is activated and the salary is automatically increased by 2.5%: from 3,000 euros to 3,075 euros (3,000 x 1.025).
- The new application rate will be: 968.04 (944.43 x 1.025)
- The new maturity rate will be: 1013.51 (988.79 x 1.025)
Trends and forecasts for 2025
2024 ended without any wage and pension indexation and forecasts for the date of the next indexation have been postponed due to less rapid than expected inflation growth.
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Learn moreOn the one hand, inflation in Luxembourg remained subdued in 2024, reaching 1.0% p.a. in December compared to 0.8% in November. And on the other hand, according to STATEC, the half-yearly average of the Consumer Price Index (CPI) decreased slightly from 1010.97 points in November to 1010.02 points in December still remaining below the threshold of 1013.46 points, necessary to trigger the next wage indexation.
In the following graph showing the evolution of the moving average of the last 6 months and the maturity rate, it can be seen how the moving average has been approaching this rate but still fails to reach it.
Analyzing the end of last year we have some inflationary and deflationary factors that are worth examining and that partially offset each other:
- Inflationary factors: in December, airline ticket prices were up 25.6% and package tours were up 15.1% due to school vacations while petroleum products posted a monthly rise of 1.0% (although their annual prices remained 8.1% below December 2023).
- Deflationary factors: a 13.6% drop in the price of electricity, a 5.9% decrease in childcare fees and a decrease in food, which fell by 0.2% compared to November.
Despite increases in certain sectors, the accumulated falls during 2024, especially in energy, have contained the evolution of the CPI. This has delayed the semi-annual moving average from reaching the maturity rate needed to trigger wage indexation, pushing the wage adjustment to 2025.
At the beginning of last year, in February, Statec expected the new wage indexation to occur by the fourth quarter of 2024. Later, in November, the next indexation was expected to take place in the first quarter of 2025. Statec's latest forecast now predicts that the next indexed payment will take place in the second quarter of 2025.
According to current forecasts, the index should fall between April and June 2025.
Historical data
Finally, we have the following table that allows us to see historical data of the different maturity rates since 1988. From the table it is worth noting that wage indexation occurs on a regular basis but the interval between the trigger dates varies significantly depending on the inflation recorded in each period.
On the one hand there are extended periods without indexation such as between August 2018 and January 2020 (17 months) and subsequently between January 2020 and October 2021 (21 months) partially influenced by the economic effects of the COVID-19 pandemic. And on the other hand there are periods with much more frequent indexations such as between 2022 and 2023 with three consecutive adjustments, a clear reflection of high global inflation caused by rising energy and commodity prices.
| Date | Maturity rate | Application rate | Salary increase (%) |
| 01.09.2023 | 988.79 | 944.43 | 2.50% |
| 01.04.2023 | 964.67 | 921.40 | 2.50% |
| 01.02.2023 | 941.14 | 898.93 | 2.50% |
| 01.04.2022 | 918.20 | 877.01 | 2.50% |
| 01.10.2021 | 895.78 | 855.62 | 2.50% |
| 01.01.2020 | 873.94 | 834.76 | 2.50% |
| 01.08.2018 | 852.63 | 814.40 | 2.50% |
| 01.01.2017 | 831.84 | 794.54 | 2.50% |
| 01.10.2013 | 811.56 | 775.17 | 2.50% |
| 01.10.2012 | 791.77 | 756.27 | 2.50% |
| 01.10.2011 | 772.46 | 737.83 | 2.50% |
| 01.07.2010 | 753.62 | 719.84 | 2.50% |
| 01.03.2009 | 735.24 | 702.29 | 2.50% |
| 01.03.2008 | 717.31 | 685.17 | 2.50% |
| 01.12.2006 | 699.82 | 668.46 | 2.50% |
| 01.10.2005 | 682.76 | 652.16 | 2.50% |
| 01.10.2004 | 666.11 | 636.26 | 2.50% |
| 01.08.2003 | 649.87 | 620.75 | 2.50% |
| 01.06.2002 | 634.02 | 605.61 | 2.50% |
| 01.04.2001 | 618.56 | 590.84 | 2.50% |
| 01.07.2000 | 603.48 | 576.43 | 2.50% |
| 01.08.1999 | 588.77 | 562.38 | 2.50% |
| 01.02.1997 | 574.41 | 548.67 | 2.50% |
| 01.05.1995 | 560.40 | 535.29 | 2.50% |
| 01.02.1994 | 546.74 | 522.24 | 2.50% |
| 01.05.1993 | 533.41 | 509.51 | 2.50% |
| 01.08.1992 | 520.4 | 497.09 | 2.50% |
| 01.11.1991 | 507.71 | 484.97 | 2.50% |
| 01.01.1991 | 495.33 | 473.15 | 2.50% |
| 01.05.1990 | 483.25 | 461.61 | 2.50% |
| 01.09.1989 | 471.47 | 450.36 | 2.50% |
| 01.12.1988 | 459.98 | 439.38 | 2.50% |
