Core inflation slips to 6-month low in March

Consumer prices rose at a more modest pace in March compared to February as core inflation slowed to its weakest pace in six months

Consumer prices rose at a more modest pace in March compared to February as core inflation slowed to its weakest pace in six months, according to figures from the Uganda Bureau of Statistics.

The consumer price index for all goods and services was up 3% year on year in March, its slowest rise in five months, against the 3.4% increase recorded for February. Core inflation rose 2.5% over the last 12 months, down from 3.1% in February, its smallest increase since last September.

“The decrease in annual core Inflation is attributed to annual other goods inflation that is registered at 3.5% for the year ending March 2020 compared to 4.2% recorded for the year ended February 2020,” the statistics bureau said.

In particular, the rise in clothing and footwear prices slowed in the year to March, increasing by 3% versus 3.5% year on year in February. This was mainly on moderated clothing inflation — 2.8% in March, from 3.5% in February — while the rise in footwear prices was flat at 3.6%.

Services inflation, a component of core consumer prices, also slowed in March, coming in at 1.2% year on year compared to 1.6% the previous month. Transport prices were the largest downward contributions, decreasing 0.6% from the 1.5% rise reported for February, driven by a decline in the growth of second hand vehicle prices.

The Bank of Uganda targets core inflation at 5% in the medium term (typically over a one-year horizon). At its last meeting in February, the Bank of Uganda left interest rates steady to support economic growth and gave little indication that it will reverse course soon.

But many of the assumptions behind the central bank’s February decision have been upended by the global spread of the Covid-19 outbreak. The government has since lowered its forecast for economic growth in 2019/2020 from 6% to 5.7%, and its containment measures have also contributed to a slowdown in economic activity.

With inflation running below its target and a slowdown in economic activity evident, the central bank has considerable latitude to lower interest rates to support the economy. The Bank of Uganda’s next policy meeting is on 03 April.

Prices of food crops and related items rose at a faster pace in March compared to the previous month — and were the biggest contributors to annual headline inflation growth — reflecting a slowdown in the fall of fruit prices.

The annual food crops and related items inflation rate rose 2.5% in March compared to 1.3% in February. Ubos said this was mainly on the 12-month annual fruits inflation rate that declined 3.7% in the year to March, up from a decline of 12.4% the previous month.

In particular, banana prices fell 8% year on year, up from February’s decrease of 22.5%. The increase in vegetable prices, however, slowed and was recorded at 8% in March compared to 12.5% the previous month. 

Overall, food prices rose 4.3% year on year, up from 3.8% in February, while non-food prices slowed to 2.5% from 3.2% the previous month.

The energy, fuel and utilities 12-month inflation rate was 7.7% in March, down from 8% in February. Firewood prices fell 0.1% year on year in the year ended March compared to a riseof 2.9% the previous month. Charcoal inflation also reduced to 27.2% from 27.8% in February. Petrol inflation was flat while diesel prices registered a small increase.

Monthly inflation

The consumer price index for all items was up 0.1% for the month, slower than February’s 0.2% rise.

Core consumer prices rose 0.4% in March, faster than the previous months’ increase of 0.1%. The increase was mainly due to other goods inflation at 0.7% compared to the 0.1% rise recorded in February.

Monthly services prices were stable at 0%, down from the 0.2% growth recorded in February; declines were recorded for health, communication, recreation and culture, and education. However, transport inflation rose to 1.6% from a fall of 1.1% the previous month, driven by a 7.2% rise in vehicle prices compared to a 4.3% decline in February.

The monthly energy, fuel and utilities inflation rate dropped by 0.7% in March, down the 0.5% rise recorded in February. The drop was due to solid fuels inflation which fell 1.6% from the 1.6% rise recorded for February. Liquid energy fuels prices dropped by 0.3%, the same rate reported the previous month.

Prices of food crops and related items fell 2% from the 0.8% rise registered the previous month. The decrease reflected the 2.2% decline in vegetable prices, up from February’s increase of 4.8%.