Inflation eases to 25.7 per cent

Relaxed fears. The marginal fall in the rate of commodity price increases is likely to calm the rising cost of doing business that had skyrocketed for the better part of 2011 .

Even as the fall in fuel and food prices have continued to drive inflation on a downward trend for the third consecutive month, economists say what Uganda needs to stabilise her economy is single digit inflation.

The Consumer Price Index (CPI), the official measurement of inflation released yesterday, indicates that headline inflation eased by 1.3 percentage points to 25.7 per cent in January, from 27 per cent in December 2011.

Dr Lawrence Bategeka, a research fellow at the Economic Policy Research Centre, said: “The fall in inflation is good news but our hope is to have single digit inflation.”

The Uganda Bureau of Statistics director for macroeconomic statistics, Dr Chris Ndatira Mukiza attributed the marginal fall in the headline inflation to a fall in prices of some food items, charcoal, fuel and transport fares in most centres.

Pump prices have for instance eased from Shs3,900 in December 2011 to Shs3,650 per litre of petrol. Diesel prices have fallen from Shs3,600 per litre to Shs3,330.

Petrol has a 1.03 per cent weight on the overall index that measures inflation and a 20.99 per cent weight within the energy, fuel and utilities group.

Diesel on the other hand has a 0.01 per cent on the overall index and 0.14 per cent within the group while paraffin constitutes a 0.66 per cent weight in the overall basket and 13.37 per cent within the group.

The fall in pump prices is attributed to the appreciation of the shilling against the dollar and the effects of reduced oil prices.

The local unit has been appreciating since November 2011. By close of business yesterday, it was quoted at Shs2,299 per dollar, down from Shs2,900 in September 2011.

Expected decline
“This decline in inflation was expected because of the appreciation of the shilling that resulted into a fall in pump prices and a decline in food prices,” Dr Eria Hisali an economist from Makerere University said.

He, however, added the dip would have been faster if interest rates were not as high as they are today.

“The business community will have a justification to keep prices high because the cost of borrowing is still high,” he said.

The fall in headline inflation, however, does not mean that commodity prices are practically coming down but that the rate of increase in a particular month slowed down. Prices can only begin coming down if inflation reduces to negative digits.

“Despite the change in fuel prices, public transport operators especially in Kampala are reluctant to reduce fares because they are not sure whether the prices will continue downwards or not,” Mr Vincent Musoke Nsubuga, Ubos Principal Statistician in charge of price said.

fkulabako@ug.nationmedia.com