Strong Shilling cuts inflation in manufacturing industry

A machine bottles mineral water. Industrial inputs cost less in the fourth quarter of last year which reduced the cost of production. File photo

What you need to know:

Implication. Importers of raw materials paid less to buy dollars.


Local manufacturers spent relatively less to manufacture products in the fourth quarter last year, the latest Producer Price Index for Manufacturing (PPI-M) shows.
The PPI-M shows inflation in the manufacturing sector declined by 0.6 per cent in December 2013, compared to a 2.2 per cent rise registered in 2012, due to the appreciation of the Shilling against the dollar.
The appreciation of the Shilling meant that importers of various products, including raw materials used in the manufacturing sector, spent fewer Shillings to buy the dollar – the currency used in international transactions – there by reducing the cost of production.

The local unit which had gained stability in the first quarter of 2012 depreciated in the fourth quarter (October, November and December), hitting a low of Shs2,720 per dollar following a pull out of offshore investors and aid cuts due to the corruption scandals in the Office of the Prime Minister.
It, however, appreciated in December 2013, trading at Shs2,512 per dollar, thus a fall in manufacturers’ operational costs. Lower operational costs point to a recovery of the sector, which suffered a slowdown as a result of double digit inflation witnessed in 2011 and the resultant rise in borrowing rates and Shilling depreciation.

The appreciation of the Shilling, according to Ms Winifred Nankya, Principal Statistician, Ubos, led to a fall of prices of processed coffee by 5.7 per cent, vegetable oil by 5.3 per cent and metal products by 3.4 per cent.

Ms Nankya further noted that competition in the sugar industry coupled with the South Sudan conflict also led to a decline of sugar prices during the period.
It should be noted that the South Sudan conflict made Ugandan manufacturers incur huge losses.
Trade Minister Amelia Kyambadde was quoted early this year saying Ugandan manufacturers lost huge revenues on top of incurring extra costs in form of storage and spoilage of goods that were meant for the South Sudan market.

The PPI-M measures inflation for manufactured goods. It can also be referred to as the factory gate price – price manufacturers incur to produce a particular product.