Consumer prices slow slightly in September but core inflation hits 12-month high

Uganda’s annual consumer price inflation fell slightly in September, the first decline in four months, largely because of a slowdown in the annual food crops and related items inflation rate.

Data released by the bureau of statistics showed the 12-month consumer price inflation rate at 3.7% in September 2018, down from 3.8% in August 2018. The bureau said the slight reduction was largely attributed to the annual food crops and related items inflation rate which fell 2.2% in September versus a decline of 1.2% in August. Within this category, the main downward effect was from fruits prices which declined 4.6% and vegetables inflation which fell 3.4%.

Other downward contributions were from the annual energy, fuel and utilities inflation rate which fell to 10.1% in the year to September down from 14.1% in August. The largest contribution came from solid fuels, particularly charcoal, whose 12-month inflation rate declined to 11.7% from 23.4% a month earlier.

The core inflation rate, which strips out volatile food and energy prices and is therefore considered to be a more accurate indicator of inflation trends, rose for the third straight month to 3.9% in the year to September 2018 — the highest it’s risen since September 2017 — up from 3.5% the previous month.

This rise in annual core inflation was principally a result of the 12-month inflation rate of other goods which increased to 3.4% compared to 2.3% in the year ended August 2018. However, services inflation slowed to 4.5% down from 5.3% in August.

Core inflation will come into focus when the Bank of Uganda meets next month to determine its key policy rate. The rate is closely watched by the Bank, whose main monetary policy objective is that it does not exceed 5% over the next 12 months.

BoU’s decision – whether it keeps the central bank rate unchanged or revises it downwards or upwards – will, therefore, reveal if it thinks the rising prices are symptoms of a bullish economy or are increasing at a rate that could threaten economic growth.

The consumer prices index rate over one month was 0.8% in September 2018, slightly lower than August’s 0.9%. Core inflation over the period increased by 0.5% from 1.0% the previous month, while food crops and related inflation was 3.6% in September, up from 1.8% in August.

The one-month energy, fuel, and utilities inflation rate rose 0.1% after falling 1.1% in August, largely because of a rebound in the prices of charcoal.