Macroeconomic Forecast Laos

Year-on-year inflation remains in single figures, falling to 7.1% in February from 8.1% in January. In 2004 annual average inflation eased to 10.5%, from 15.5% in 2003. Although higher world crude oil prices are posing a challenge by putting upward pressure on domestic fuel prices, so far the impact has not been severe. In early July, the government stated that its single-digit inflation target was still within reach, based on price trends in the first half of 2005. Nevertheless, BMI believes that more recent inflation data is likely to show a sharp pick up in prices in H2 2005 - not least because the government is struggling to tackle some of the underlying causes of inflation, notably rapid money supply growth.

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