High inflation in Laos - it's been worse before

By:  Laoconnection.com, February 6, 2024

For Laos, the start of 2024 has seen continued news of high inflation throughout the economy in many sectors and across a variety of products and services.  

While the Lao government has the goal of getting inflation to 9% for 2024, it remains in the double digits at the time of this writing.  The average inflation in 2023 was 31.2%, according to the Lao Statistics Bureau.

As bad as the inflation rate currently is in Laos, is this the worst inflation the country has seen?

The answer is no.  In fact, it's been worse before.

Retrospective

For those who may recall, the Asian Financial Crisis in 1997 saw many Asian economies falter and Laos was no exception during that time.  At the time, it relied heavily on Thai imports, its currency devalued against the Thai baht and US dollar, and it had many systemic and structural challenges.

The World Bank reported the ripple effects from that event, stating that the following year in 1998 the inflation rate in Laos skyrocketed to an astonishing 98%.  Then in 1999, it increased even further to 125%.  Fortunately, that inflation shock was lived and things eventually returned to normal.

Fast forward to 2024 and the country has had 2 years of high double digit inflation.

How this affects people

One of the least reported stories, though often discussed amongst the local population, is when hyper-inflation occurs it becomes especially challenging for low income households and the rural poor.  Their situations are made worse by wages that increase only marginally.  

For example, in 2023, for the month of May inflation was 39% while wage increases were only 5.7%, as reported by the World Bank.  

What also compounds the situation is currency devaluation.  The kip continues to lose value pushing more people to want Thai baht and US dollars which the Lao government has been attempting to restrict.  The World Bank also noted that on average that a 1% fall in the value of the kip increases consumer prices by 0.5%.  Inflation will remain high until exchange rates stabilize. 

With higher inflation, individuals and businesses are forced to cut back on their spending which admittedly is good for reducing inflation.  However, it also reduces economic activity in an already low-middle income developing country such as Laos.

We know the Lao economy and the people of Laos will rebound from the current inflation crisis but how well they actually do so remains to be seen.

- Laoconnection.com