Consumer inflation rises to 5-month high

November's reading suggests a stirring in underlying inflationary pressures, with Ubos attributing the gain in the headline CPI to a rise in core inflation

Uganda consumer price inflation increased for the second straight month in November, rising to its highest level in five months, boosted by a rise in core consumer prices.

Consumer prices increased 3% in November from a year earlier, according to data from the Uganda Bureau of Statistics. That is the highest rise in the headline inflation rate since June, when it posted a 3.4% gain. Prices rose 1.9% year on year in September and 2.5% in October.

The November reading suggests a stirring in underlying inflationary pressures, with the statistics bureau attributing the gain in the headline index to a rise in core inflation. Indeed, year on year growth in core consumer prices — the most closely watched measure by the Bank of Uganda — came in at a four-month high of 2.9%.

Chart showing consumer price inflation trends in Uganda in the year ending November 2019

The pick up in core inflation comes ahead of a bimonthly meeting by the central bank’s monetary policy committee in December to set its policy interest rate, the central bank rate. At its last meeting in October, the committee cut the CBR for the first time since February 2018, reducing it by 1% to 9% in a bid to support economic growth.

The bank cited a “benign inflation outlook” as its main reason for the rate cut, and said it expects annual core inflation to remain below the 5% policy target until the fourth quarter of 2020. It is unlikely that the two consecutive increases in core prices since that decision will cause the committee to revise interest rates since they could be read as an indicator of a boost in the level of economic activity.

Read more: Bank of Uganda cuts policy rate to support economic growth

Ubos said the 2.9% rise in core inflation in November, from 2.6% in October, was driven by a 3.8% year on year increase in other goods inflation. In particular, clothing and footwear inflation rose 4.7% while inflation for alcoholic beverages and tobacco increased by 2.1%. Services inflation remained unchanged, increasing 1.5% in November, the same rate recorded the previous month.

Energy, fuels and utilities inflation also recorded a 12-month increase of 7.4%, up from 5.1% in October. This was due to solid fuels inflation which rose 23.5% from 16.3% the previous month, driven by charcoal prices. In contrast, liquid energy fuels inflation fell 4.2% in November, down from a decline of 2.8% in October.

Inflation for food crops and related items gained 0% in November, up from a fall of 0.9% in the 12 months to October. Vegetables inflation rose 5.7% from 4.9% while fruits inflation declined 7.7%, up from a decline of 8.1% the previous month.

Monthly inflation

Uganda inflation increased slightly in November 2019, driven by a rise in core consumer prices. The headline consumer price index rose 0.3% on a month-to-month basis from the 0.2% increase recorded in October.

Ubos said the rise in the headline rate was a result of growth in core inflation. Core prices, which strip out more volatile prices of energy and food, increased 0.2% in November versus 0.0% in October.

Energy, fuel and utilities inflation rose 2.1% in November from 1.3% in October, largely due to growth in solid fuels inflation.

Inflation for food crops and related items dropped 0.5% in November, down from growth of 1% in October. This was due to a slowing in inflation for fruits, while vegetables inflation quickened.