Food prices help slow consumer inflation in August

Uganda’s annual inflation fell to its lowest level in nine months in August as a slowdown in the increase of food prices brought down the headline rate.

The consumer price index for the year ending August declined to 5.2% from 5.7% in July, the third consecutive month it is falling, according to figures from the Uganda Bureau of Statistics.

The biggest contributor to the trend is a reduction in the increase of food prices, with annual food crops and related items inflation declining to 11.8% from 18.1% for the year ended July. Food prices were pulled down by fruits inflations which declined to 17.4% versus 24.2% in July.

Core inflation, which strips out volatile items and is closely watched by the Bank of Uganda, also fell to 4.1% from 4.5% in July. The category is made up of services inflation, which declined to 3.3% from 4%, and other goods inflation which came in at 4.6% from 4.9%.

In the statement issued to explain its policy rate for August, Bank of Uganda said its medium-term forecasts for inflation were unchanged, with both annual headline and core inflation expected to remain in the 5±2 range. The Bank’s target rate for core inflation is 5% in the medium-term.

The upside risks to that outlook according to the statement are the future direction of food crop prices and the path of the exchange rate, which is highly dependent on external economic conditions.

Read More: Bank of Uganda puts brakes on monetary easing as economy improves

Annual inflation peaked in May 2017 at 7.2%, which at the time was the highest rate in 15 months. The driver was higher food prices, a result of a prolonged drought experienced in parts of the country for much of last year and in the first months of this year.

But as the effects of the drought have receded in the past few months, food crop prices have gone down and, with them, the general increase in consumer prices. Food, drinks, and tobacco account for 46% of the average Ugandan household’s monthly expenditure – the biggest share of any single item – according to the Uganda National Household Survey of 2012/13; in rural areas, the share is higher at 50.8% and lower in urban areas at 31.6%.

Annual energy, fuel, and utilities inflation was unchanged at 7.8%, the same rate as in the year ended July.

On the other hand, monthly inflation increased by 0.2% versus the 0.5% fall recorded in July. Ubos attributes the rise to a 0.9% increase in food crops and related items inflation from a 2.9% drop in July. Core inflation came in at 0.0%, up from a 0.3% drop the previous month, while energy, fuel, and utilities rose by 0.6% versus a 1.1% rise in July.