Inflation falls on spending cuts and lower oil prices
Inflation falls on spending cuts and lower oil prices
The inflation rate has declined from January to April this year despite rising demand for products such as food.
In January, the Consumer Price Index stood at 122.7 with the inflation rate at 2.04 percent. This trended downwards to 1.44 percent in February, 1.19 percent in March and 0.95 percent in April.
A senior Lao economist from the National Economic Research Institute, Dr Leeber Leebouapao told Vientiane Times yesterday the reasons for the decrease were attributed to a number of factors including the drop in fuel prices on the world market and the cut in government spending.
“I observed that the volume of cash circulating in the economy has not increased significantly, thereby putting downward pressure on inflation,” he said.
In 2013-14, the government operated 2,420 projects with a total value amounting to more than 1 trillion kip while in 2014-15, the government has cut its budget to support only 745 state investment projects with a total value of 265 billion kip.
The major cut in government expenditure comes in the aftermath of the country's revenue shortfall for the past two consecutive years, affecting the income of companies particularly construction enterprises and workers.
Dr Leeber said the decline in the revenue of companies and workers could mean a decrease in purchasing power which was considered one of the main factors driving inflation in Laos.
Falling oil prices are contributing to lowering production costs in countries of the region including Laos, but prices of products have not declined.
According to a recent World Bank report, low global oil prices would benefit most developing countries in East Asia, especially Cambodia, Laos, the Philippines, Thailand, and the Pacific island countries.
The price of oil on the world market was just over US$57.50 a barrel on the New York Mercantile index yesterday.
A BBC report recently noted from 2010 until mid-2014, world oil prices had been fairly stable, at around US$110 a barrel. But since June last year prices have more than halved.
The BBC stated the reasons for this change were twofold - weak demand in many countries due to insipid economic growth, coupled with surging US production.
Back in Laos, the inflation rate usually goes up in April, triggered by rising demand for food during Lao New Year celebrations. In contrast, this year the inflati on rate went down due to the falling price of oil and the government's tightening of expenditure.
This year, economic growth in East Asia and the Pacific including Laos will slowdown.
China's growth is expected to moderate to around 7 percent in the next two years compared with 7.4 percent in 2014.
Meanwhile the Lao economy is projected to grow at only 7.5 percent but this is still considered high compared to other countries in the region.
