Business

Central Bank forecasts rise in inflation

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By Stephen Otage sotage

Posted  Monday, June 30   2014 at  09:22

In Summary

Domestic demand and depreciation of the exchange rate are the reasons behind the forecasted rise

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Kampala.
Bank of Uganda has warned that inflationary pressures are beginning to mount on the annual core rate of inflation which had been kept under control at a minimum low of 3.3 per cent until May this year.

While commissioning Standard Chartered Bank’s Acacia Mall Branch on Friday, Bank of Uganda Governor Emmanuel Mutebile warned that core inflation is expected to double in the next financial year because inflationary pressures are expected to be stronger next year.

In macro-economics, core inflation measures the inflation that excludes consumer goods and services like energy and food which often face volatile prices. It is sometimes viewed as an indicator of underlying long-term inflation.

“Inflationary pressures are currently under control. The annual core rate of inflation was only 3.3 per cent in May. However, we do not expect core inflation to remain quite this low over the course of next financial year because inflationary pressures will be stronger next year for two reasons,” he said.

He highlighted strengthened domestic demand and the depreciation of the exchange rate since February this year, as the reasons the inflation is expected to rise. He said this is not surprising because Uganda has an open economy which mainly depends on imports which affect domestic prices.

“We should see stronger real economic growth while core inflation should remain close to its medium term target of 5 per cent,” he said.