Belgium: Selected Issues

features of Belgium’s wage-formation process. It then tries to identify some weaknesses and policy recommendations that strive to strike a balance between maintaining benefits of wage indexation while attenuating drawbacks for the economy. Inflation at record levels is putting the sustainability of Belgium’s wage indexation system to the test by weighing on corporate and government finances. Current price pressures in Belgium show parallels to periods of elevated inflation in recent history yet also involve some important differences. Energy price inflation in Belgium is among the highest in the euro area, in part driven by the relatively low taxation of energy products. Compared to the median euro area country, Phillips curve estimates point toward some differences in the inflation-setting process and inflation persistence in Belgium. Wage formation in Belgium is characterized by the desire to shield households from purchasing-power losses while protecting the competitiveness of a highly open economy. Despite successfully maintaining wage competitiveness in recent years, the current run-up in inflation is prone to put the wage-setting framework under additional strain.