Annual Inflation in Laos Exceeds 30 Percent in August

People walking in front of the Patuxai war monument in the centre of Vientiane, Laos, on March 12, 2020. (Mladen Antonov/AFP via Getty Images)

Inflation in the Southeast Asian nation of Laos spiked to 30.1 percent on an annual basis last month according to the Lao Statistics Bureau.

August inflation was roughly five percentage points higher than the 25.6 percent inflation rate posted in July. In August 2021, inflation was only at 3.81 percent. As such, the August 2022 inflation numbers are close to eight times what it was a year back. The cost of gas, electricity, water, and housing rose by 20.5 percent. Food and non-alcoholic beverages saw a 30.2 percent increase.

The price of rice rose by 35.2 percent, fish and seafood by 26.7 percent, and meat by 22.3 percent. Fruit prices jumped by 31.1 percent, cooking oil by 121.8 percent, and seasoning by 47.6 percent. Eggs, which were available for 40,000 Laotian kip ($2.56) per box in April, are now priced at 55,000 kip ($3.52) or above, according to Vientiane Times.

Laos has one of the highest rates of inflation in the Southeast Asian region. Economists have raised concerns about the steep rise in food prices, especially considering that flooding has devastated some of the farmland in the country.

High fuel prices and continuous depreciation of the Laotian kip are two of the major reasons contributing to the inflationary pressure. From the beginning of the year, the USD/LAK (kip) exchange rate has seen a rise from around 11,175 to 15,021, as of Sept. 10, a spike of over 34 percent.

Laos is highly reliant on imports for fertilizer, animal feed, machinery, and other agricultural products necessary for farming and cattle. As such, the elevated costs of these inputs also add to the inflation woes.

Chinese Debt

In addition to inflation, another factor pressuring Laos’ economy is debt, a major part of which is accounted for by Chinese lenders. Since 2019, the country’s public debt has rapidly risen.

Estimates by the World Bank put the total public and publicly guaranteed (PPG) debt as having risen to 88 percent of GDP in 2021 from 68 percent in 2019. Roughly 50 percent of the debt is owed to China.

However, Bradley Parks, executive director at research lab AidData, is not convinced about these numbers. In an interview with Nikkei Asia, he pointed out that the World Bank’s numbers do not account for hidden debts Laos owes to China.

“The country’s true level of public debt exposure to all creditors is most likely north of 120 percent of GDP. … There is no other country in the world with a higher level of public debt exposure to China as a percentage of host country GDP,” he said while estimating Lao’s total debt exposure to China at 64.8 percent of GDP.

High inflation and financial strain are limiting people’s access to resources like fuel. Back in May, the government had asked people to cut down travel due to fuel shortages, pointing out the need to prioritize the demands of agriculture and industry.

Normal citizens were limited to buying just around $30 worth of fuel at a time, while farmers were restricted to 20 liters.