Inflation hits highest in 15 months, driven by food prices

Consumer price inflation for the year ended May 2017 rose to 7.2%, its highest level in 15 months, as the effects of a prolonged drought in parts of the country pushed up food prices.

Annual food crops inflation increased to 23.1% from 21.6% last month, driven by fruits inflation which rose 37.2% compared to 35.5% in April.

Core inflation, which is closely watched by the Bank of Uganda, came in at 5.1% year on year versus 4.9% last month due to a rise in other goods inflation to 5.6% compared to the 5.1% recorded in April.

The modest rise of core inflation, however, is likely to give the central bank little impetus to reverse the easing monetary policy it has undertaken since April 2017 when the Monetary Policy Committee meets to decide the policy lending rate on 15 June.

The central bank’s policy aims to keep core inflation around a medium-term target of 5%, and May’s annual rate is within the target. The bank pays attention to the core rate because it excludes volatile items like food – which bears the biggest responsibility for the rise in headline inflation – and energy.

In April, Bank of Uganda reduced the policy lending rate by 0.5% to 11% citing an improved medium-term inflation outlook and the need to support private sector credit and economic growth.

Prices of energy, fuels, and utilities increased by 7.0% year on year from 5.3% in April, driven solid fuels inflation that rose 6.7% in May from 4.1% the previous month, Ubos said.