Uganda inflation hits 20-year high at 21.4pc

Kampala. Ugandans will be bracing themselves for even harder times ahead as the continued depreciation of the local currency, rising prices for fuel, essential commodities and food combined to push inflation to a new 20-year high, further threatening the economy’s growth.The Consumer Price Index (CPI) released by the Uganda Bureau of Statistics yesterday indicates that inflation rose from a revised rate of 18.8 per cent in July to 21.4 per cent in August.

This represents a 2.6 percentage point rise, which, though lower than the 3.1 percentage point increase registered in July, still dragged the battered economy over another double digit threshold.
The Director for Macro-Economics Statistics at Ubos, Dr Chris Ndatira Mukiza, said food inflation, which rose to 42.9 per cent from 40.7 per cent, remains the main driver of inflation.

As economists rallied to make sense of the depths to which the country’s economy is plunging, Makerere University’s Prof Augustus Nuwagaba warned that with the cost of living rising, people will need more money to pay for the same basket of goods and services compared to July. If they are to stick to a similar budget, he said, it would fetch them fewer goods.

The weak shilling that has further pushed up transport cost—which has been under a sustained onslaught from increasing fuel pump prices—coupled with supply shocks to markets saw the cost of sugar, beef, chicken, fish, eggs, bread and fresh milk rise to new highs.

Food has a 27.2 per cent weight in the basket of goods and services used by Ubos to measure CPI, meaning any upward swing in food prices would apply substantial inflationary pressures on the economy. Inflation has been rising since December last year when it stood at 3.1 per cent before jumping to 5 per cent in January and 6.4 per cent in February.

It hit double digits in March when it stood at 11.2 per cent, 14.1 per cent and 16 per cent in May (the highest level in a decade) before slightly slowing down to 15.7 per cent in June. But the upward trend resumed in July with 18.8 per cent.

Bidding to stabilise the economy amidst loud appeals for help from the business community whose enterprises have been battered, the Central Bank recently intervened in the market by raising its lending rate to 14 per cent in August from 13 per cent in June in a bid to suck money out of circulation, tighten monetary policy and control the runaway inflation.

But the measure appears to have only marginally restrained the rise in inflation.
Central Bank Governor Tumusiime Mutebile, recently said the impact of his interventions would not be realised in the short term. The annual core inflation, which excludes food crops, fuel, electricity and metered water, which are volatile to price changes increased to 20 per cent, up from 15.6 per cent in July. This is four times higher than Central Bank’s inflation target of 5 per cent.

“Inflation is getting out of hand and it could worsen because the consumption patterns of Ugandans are still bad. Our exports are becoming less and less each day yet we still import flashy and expensive commodities, which will only inflame the situation,” Prof. Nuwagaba said.

He warned that the rising inflation could result in stagflation where prices will continue rising as economic activity declines, a situation that is even more dangerous to the economy than inflation.