Laos inflation edges up in August, above the central bank's 2026 target after a rate cut

Implications

Facts

Consumer prices: inflation in August 2026 was 7.7% year on year ¹, up from 7.6% in July. The January–August average was 7.9% (versus the same period a year earlier). The housing, water, electricity and cooking fuel category rose over 30% year on year, and electricity prices in July were reportedly up 91.5%. Source: The Mekong Memo (2026-09-02, summarising Laotian Times reporting). Monetary policy: the Bank of the Lao PDR (BOL) cut its seven-day base rate to 7% on 20 August 2026 ². It cited the slowdown in inflation from 10.2% in April to 7.4% in June. The BOL named strong foreign-currency demand (for external debt service), oil and gold price volatility and multi-currency use as risks. Source: Laotian Times (2026-08-21). Target: at an extraordinary session of the National Assembly on 7 July 2026, the BOL set a target of keeping average 2026 inflation below 7%, with five priority measures including exchange-rate stabilisation and money-supply management. Source: KPL (Lao News Agency, 2026-07-07).

Analysis

Over time, inflation slowed from 10.2% in April to 7.4% in June, then re-accelerated slightly for two consecutive months to 7.6% in July and 7.7% in August. The January–August average of 7.9% is above the full-year target (below 7%). The central bank cut rates during the disinflation phase, but subsequent readings suggest the decline has stalled.

By comparison, Thailand's August CPI inflation was 2.53% with a policy rate of 1.00% (ADB, as of August 2026). In Laos, even at a policy rate of 7%, real interest rates remain close to zero, limiting the real appeal of kip deposits. The underlying driver is foreign-currency demand for external debt service, which pushes up prices via kip depreciation and import costs; a rate cut alone will not improve household real incomes.

Counterpoints and uncertainties

Inflation has slowed substantially from 10.2% in April; if the recent stall proves temporary and inflation falls again later in the year, the rate cut may be judged appropriate. Other reports refer to different government inflation targets for 2026, so whether inflation is 'above target' depends on which target is used; this article uses the BOL target presented to the National Assembly.