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Weak KIP Continues to Drive Inflation

Source: Vientiane Times

The cost of living is continuing to rise due to the depreciation of the kip, forcing thousands of people to seek jobs in other countries so they can earn enough money to survive.

Although the rate of inflation rose more slowly in August at 25.88 percent, down from 28.64 percent in June and 27.8 percent in July, the rate is one of the highest in the region.

The weak kip is one of the main factors driving inflation, according to a report from the Lao Statistics Bureau.

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The report stated that a lack of foreign currency, particularly the Thai baht and US dollar, entering the foreign exchange market was resulting in continuing depreciation of the kip.

In August, the kip fell by 1.6 percent and 2.4 percent against the US dollar and Thai baht respectively, compared to the figures for July.

Another reason for the rising cost of goods and services is linked to the fact that Laos imports more than it exports, despite the government’s attempt to restrict the import of products that can be grown or manufactured in Laos.

Thirdly, the cost of imported goods is rising, notably fuel. The cost of imported fuel rose by 10 percent in August compared to July.

Prime Minister Dr Sonexay Siphandone last week ordered the relevant government bodies to urgently address skyrocketing inflation, continuing depreciation of the kip, and the level of high public debt.

The Prime Minister demanded that stronger action be taken to stabilize currency exchange rates and restrict the import of luxury goods and goods that can be produced in Laos.

The Ministry of Industry and Commerce was ordered to closely monitor imports and the supply of fuel, ensuring that sufficient fuel is available for Lao consumers.

Over the past few months, the government has increased the price of fuel several times, which has in turn driven up the price of general consumer goods.

The latest increase was announced on August 31, raising the price of premium grade petrol in Vientiane to 31,040 kip per litre, regular grade to 23,210 kip, and diesel to 20,860 kip.

In August, the highest price rise was recorded in the hotel and restaurant category, which stood at 32.79 percent year on year.

This was followed by the food and non-alcoholic beverage category (31.85 percent), the clothing and footwear category (27.11 percent), the household goods category (24.51 percent), the alcohol and tobacco category (22.55 percent), and medical care and medicine (21.11 percent).

One of the main challenges for the government is to stabilize currency exchange rates and rein in inflation because 70-80 percent of goods purchased in Laos are imported.

The government has instructed traders and companies to display the prices of their products in kip, but most still base their products on foreign currencies.