High food prices raise March inflation

A vendor sells fruits in Kampala. High inflation in March is said to have been driven by the rising cost of several fruits and vegetables. PHOTO BY EPHRAIM KASOZI

What you need to know:

Reason. Increase blamed on decreased supplies of agricultural products to markets owing to a prolonged dry spell.

Uganda’s consumer prices rose by 0.3 percentage points in March due to a rise in food prices.
The Consumer Price Index (CPI) released by the Uganda Bureau of Statistics (Ubos) shows inflation rose to 7.1 per cent in March from a revised 6.8 per cent a month earlier.

Food prices rose 12.7 per cent in March compared with 11 per cent in the previous month, driven by the rising cost of several fruits and vegetables.
Presenting the CPI at Ubos offices, Mr Chris Ndatira Mukiza, the director Macro economic Statistics Ubos, attributed the increase in prices to decreased supplies of agricultural products to markets, owing to a prolonged dry spell experienced in most parts of the country.
The rise in inflation therefore means that people’s purchasing power is being eroded, thus one needs more money to pay for a similar basket of goods and services

Reliance on rain-fed agriculture
It should, however, be noted that as long as Uganda still relies on rain-fed agriculture, inflationary pressures resulting from food shortages will continue to pose a challenge to Uganda’s policy makers.

Food accounts for 27.1 per cent - the biggest percentage - of the components in the baskets that measures inflation.
The onset of rains is, however, expected to result in increased food supply to markets, which will help abate inflationary pressures. On a month-on-month basis, consumer prices rose 1.1 per cent, faster than the 0.4 per cent increase recorded in February. Important to note, however, is core inflation, which excludes food crops, fuel and metered water that are volatile to price change, fell to 3.7 per cent in March from a revised 3.9 per cent in February.

The current core inflation rate is within Bank of Uganda’s 5 per cent target.

High inflation and central bank rate
The Central Bank Rate (CBR) had remained unchanged at 11.5 per cent for four consecutive months.
Mr Stephen Kaboyo, the Alpha Capital Partners managing director, said the rise in the March inflation could sway the Central Bank to embark on tightening the policy rate by about 50 or 100 basis points for April.

Although Bank of Uganda forecasts annual inflation to be in the range of 4-5 per cent in the next few months and 5.5 - 6.5 per cent over the next 12 months, it warns of possible stronger inflationary pressure risks arising from possible exchange rate depreciation, stronger fiscal demand from the fiscal sector and increase in food prices on account of drought and regional food supply shortfalls, which could drive up inflation.