Inflation is a growing concern for the government, which fears that rising food prices may lead to the failure of macroeconomic targets and public unrest across the country. State media reported in early May that food prices in markets were now "out of control", despite a government decree designed to hold the prices of selected products in check. The deputy planning and investment minister, Bounthavy Sisouphanthong, said that the government was re-analysing measures to minimise the impacts of inflation. Road and bridge tolls have already been cut and may be waived altogether. The government has pledged to keep the inflation rate below GDP growth-something it has not always managed to do. Real GDP growth in 2010 was reported at an estimated 7.9%, but the rate of inflation reached 8.1% year on year in September.

The Ministry of Finance appears loath to accept a revenue-damaging cut on fuel import tax or a fuel subsidy, which it estimated would cost at least K70bn (US$8.8m) a month. In March the Ministry of Industry and Commerce asked the cabinet to consider subsidies as one way to stabilise the price of fuel. A think-tank, the National Economic Research Institute (NERI), has warned that the government needs to respond to the situation quickly. NERI supports the idea of a fuel subsidy, suggesting that Laos "would gain more than we lose", as volatile oil prices will negatively affect the value of investment projects owing to rising construction costs.

The Asian Development Bank (ADB) has also advised that proper measures and policies are required to keep inflation-which it forecasts at 6.5% in 2011-under control. The ADB has also warned that the social and environmental impact of large projects must be closely monitored to ensure that growth remains sustainable. Meanwhile, the World Bank's projected rate of inflation for 2011, of 5­6%, is based on the rates that declined notably towards the end of 2010. It says that recent increases in global food prices have had only a limited impact on Lao inflation, but concurrent rises in world fuel prices are more likely to cause inflationary pressure.

In March the Bank of the Lao People's Democratic Republic (the central bank) announced that it would keep its policy interest rate unchanged at 12.5%, despite the pressure of rising inflation. The central bank governor, Phouphet Khamphounvong, said that because the government had committed only to keep inflation below the GDP growth rate, there was no need to introduce any specific measures for as long as the rate of inflation remained below the pace of growth. Several neighbouring countries, such as Thailand and Vietnam, have increased interest rates to help to stabilise inflation. However, Phouphet said that rather than encouraging people to keep money in banks by raising interest rates, Laos would do better to lower production costs. The central bank last raised its policy interest rate in September 2010, and although commercial bank rates have since remained unchanged, local businesses have reported difficulties in obtaining loans.