Tame the rising inflation now
Posted Wednesday, October 2 2013 at 01:00
...the government should step up its efforts and rein in the current rise in inflation. Failure to do so implies that household incomes will be squeezed further and prospects of robust economic growth will be difficult to realise.
Easing the sting of the increasing cost of living in Uganda is getting more and more difficult with inflation rising to 8 per cent, a figure it almost last hit in August 2012.
Latest figures from Uganda Bureau of Statistics show that inflation rose from 7.3 per cent in August to 8 per cent in just a month on the back of rising food prices. Additionally, food crop inflation also rose to 16.2 per cent from 12.9 per cent in the same period.
Early last month, the Governor Bank of Uganda, Mr Emmanuel Tumusiime Mutebile, said: “A modest tightening of monetary policy should act to discourage economic agents from raising nonfood prices in response to the food price shocks and should counter any rise in inflation expectations.”
Such a jump in inflation ought to be watched because it will have an impact on interest income for depositors and borrowing costs for businesses as well as individuals. Case in point, interest incomes declined by 27.6 per cent to Shs137.89 billion (about $53.1 million) at the end of June 2013, compared with Shs190.42 billion (about $29.01 million) during the same period last year, as demand for credit also fell.
The rising inflation signals a significant decline in purchasing power, especially of those on fixed salaries.
Bank of Uganda statistics show that household consumption reduced by 1.4 per cent in 2012/13, with modest chances of a slight increase in the coming year. This is not good for the economy given that the tax payers are the same people who pump money into the government’s coffers through taxes. This, in effect, reduces the country’s tax revenue.
Economic growth, which according to latest figures grew by 5.8 per cent, higher than 5.1 per cent for the financial year ended June 2013, might also suffer from persistent high interest rates that discourage new borrowing for consumption and investment.
Therefore, the government should step up its efforts and rein in the current rise in inflation. Failure to do so implies that household incomes will be squeezed further and prospects of a robust economic growth will be difficult to realise.