Food prices increase significantly in Lao markets.        --Photo by Chaleunsack

January inflation rate soars to new high of 40.3 percent

Year-on-year inflation in Laos jumped to 40.3 percent in January, the highest rate in 23 years, according to the latest report from the Lao Statistics Bureau.
The government is attempting to curb the rising cost of goods and services but prices are showing no signs of falling.
Laos has one of the highest inflation rates in Asia, causing members of the public to wonder when the consumer price index will reach its peak and whether it will return to a manageable level.
According to the Lao Statistics Bureau, the inflation rate will remain at two digits in the first and second quarters of this year, but the government’s measures to control the price of products and services may soon yield positive results. The LSB forecasts that inflation will fall later in the year.
The depreciation of the kip against the US dollar and Thai baht and the high price of fuel are among the key factors driving inflation, resulting in rising prices of products purchased from neighbouring countries. The surge in the price of fuel has bumped up production costs, as machinery, oil, animal feed and fertiliser must all be imported at increasingly higher prices.
The consumer price index has skyrocketed beyond all expectations since early last year. Inflation in May last year was recorded at 12.81 percent before climbing to 23.61 percent in June, 25.62 percent in July, 30.01 percent in August, 34.05 percent in September, 36.75 percent in October, 38.46 percent in November, and 39.27 percent in December.
This could be the worst inflation that Laos suffered since the Asian financial crisis of 1997-98, with the kip significantly losing value against the Thai baht and US dollar.
Between July 1997 and June 1998, the kip lost 70 percent of its value vis-a-vis the dollar, according to the IMF.
“The Lao kip, given its close link to the Thai baht, was particularly vulnerable to the exchange rate volatility that rocked the region,” the IMF stated.
“In the wake of the regional crisis, foreign direct investment commitments to Laos fell by 91 percent in 1997, and actual flows declined by 41 percent.” The Asian financial crisis severely affected Laos until 2000, with year-on-year inflation surging to as high as 75.75 percent in January 2000 before declining to 58.74 percent in February, 45.39 percent in March, 34.87 percent in April, and 31 percent in May.
The government has pledged to ensure an economic growth rate of at least 4.5 percent in 2023 while capping inflation at 9 percent. The Bank of the Lao PDR (BOL) has vowed to tighten currency exchange rates and in the middle of January ordered 113 money exchange units affiliated with commercial banks to suspend their operations. This move is intended to more closely regulate foreign currency exchange rates.

By Somsack Pongkhao
 (Latest Update February 7, 2023)