Inflation jumps to highest level in 11 months

The year-on-year inflation rate rose to 4.7 percent in July, which is the highest rate recorded in Laos since August last year. 
According to the Lao Statistics Bureau, the consumer price index (CPI) stood at 118.51 points in July, indicating an inflation rate of 4.7 percent, up from 3.96 percent year-on-year reported in June.
Fluctuating currency exchange rates are considered to be one of the main drivers of inflation in Laos.
Strong demand for foreign currencies, notably the Thai baht and US dollar, means that businesses often rely on the parallel market to buy the foreign currencies they need to import goods.
However, the gap between the official and parallel markets is widening, with the kip continuing to depreciate in June and July despite the government’s measures to deal with the issue.
Governor for the Bank of the Lao PDR, Mr Sonexay Sitphaxay, told the National Assembly recently that the gap in the kip/US dollar exchange rate between commercial banks and the parallel market had widened by as much as 22.1 percent in July.  
Over the past seven months, the difference in the kip/US dollar exchange rate between the official and parallel markets widened on average by 9.98 percent, while the difference in the kip/Thai baht exchange rate grew by 0.52 percent.
Mr Sonexay said the increasing difference in these exchange rates was linked to the rising demand for foreign currencies to meet the trade deficit and repay debts owed to foreign countries amid the Covid-19 pandemic.
In July, Laos registered a record trade deficit of US$99 million, up from US$62 million recorded in June, according to the Lao Trade Portal website administered by the Ministry of Industry and Commerce.
The depreciation of the kip has impacted on imported products and resulted in rising production costs as well as driving up the cost of living in Laos.
For instance, the price of eggs has risen from 28,000 kip per box of 30 in recent months to 37,000 kip per box, according to Vientiane’s egg dealers.  
In July, the cost of food and non-alcoholic beverages surged by 4.44 percent year-on-year, and 1.10 percent month-on-month.
For instance, the price of beef rose by 11.18 percent year-on-year, while the prices of cooking oil and seasoning surged by 14.78 percent and 14.68 percent year-on-year respectively.
Costs in the communication and transport category rose by 0.92 percent month-on-month and 6.78 percent year-on-year. The increase in this category is linked to the rising price of cars, motorcycles and fuel. The price of fuel rose by 25.44 percent year-on-year.
Meanwhile prices in the restaurant and hotel category went up by 2.19 percent month-on-month and 4.42 percent year-on-year due to the rising cost of cooked food.
The price of medical care items climbed by 0.6 percent month-on-month and 2.24 percent year-on-year due to the rising cost of medicines and hospital services.
Rates in the clothing and footwear category rose by 1.15 percent month-on-month and 3.94 percent year-on-year.
The cost of household goods went up by 0.44 percent month-on-month, and 3.71 percent year-on-year.

By Somsack Pongkhao
  (Latest Update August 25, 2021)