After declining in the final quarter of 2010, inflation has been accelerating since January 2011, driven by transport costs that have jumped by 20-30% year on year. In March the rate of inflation hit 7.7% year on year, up from 6.1% in January. Global oil prices are the major cause of the surge, with fuel prices having a direct effect on the overall price level. According to the Lao International Transport Association, in the first quarter of 2011 the cost of transporting goods within Laos and to and from other countries rose by 10-15%. These costs led to a cement shortage as producers were unable to pay the higher transport costs without raising the price of cement, which requires government permission. In March a local steel producer, Vientiane Industry, cancelled plans to increase prices after coming under pressure from the authorities. The price of the imported billet that is needed to produce steel has increased from US$500/tonne in 2010 to US$700/tonne at present.

Rising transport costs have also caused beef and pork prices to increase, owing to the higher cost of animal feed. Pork and fish prices rose further in the southern provinces when the Ministry of Agriculture and Forestry put a temporary ban on the sale of beef in April as a result of an outbreak of foot-and-mouth disease. Another increase in bus fares is also imminent, with operators in late April requesting government permission to raise prices. Diesel and petrol prices were up by around 4% in April. The Ministry of Public Works and Transport previously approved a 10-15% increase in bus fares in January.

Local economists have expressed concern that raising the minimum wage could stoke inflationary pressures. The basic minimum wage is K348,000 (US$42)/month at present, but the Lao Federation of Trade Unions has proposed that it rise by more than 100%, to K700,000/month. In addition to increasing workers' spending power, labour is in short supply for industrial projects and a more attractive minimum wage is seen as one way of enticing Lao migrant workers back from jobs in Thailand. The ADB mission in Laos has suggested that although raising the wage might have some impact on exports, industry and mining, the effect on inflation should be slight as few people receive the formal minimum wage. The ADB has projected a rate of inflation of 6.5% for 2011 and says that GDP growth would be unaffected if inflation came in at a higher rate.

The higher cost of imported fuel and vehicles has also had a negative effect on the level of foreign-exchange reserves. According to the central bank governor, foreign reserves have fallen to the equivalent of four months of import cover, from the usual level of five or six months. Given the declining availability of foreign currency, commercial banks have started to limit purchases of foreign currency to main branches or headquarters. The official limit on buying foreign currency is K20m (US$2,500) per day per person.