Inflation to stay above Bank of Uganda target until next year 

Prices of assorted food items, which had been the main drivers of inflation, have decelerated in the last three months. Photo / Edgar R Batte 

What you need to know:

  • Whereas inflation had accelerated to 10.7 percent in October, it has been declining since December, reducing to 9.2 percent in February

Inflation is projected to remain above Bank of Uganda’s 5 percent target throughout 2023, according to a report by Fitch Ratings. 

The report, which highlights a number of economic fundamentals, indicates that whereas inflation had accelerated to 10.7 percent in October, it has been declining since December, reducing to 9.2 percent in February. 

However, the report indicates, it will remain above Bank of Uganda’s target throughout this and part of next year. 

“We expect inflation to moderate to 5.5 [percent] in 2024,” the report reads in part, but notes that, however, upside risks remain significant, related to adverse weather conditions and prolonged commodity price shocks. 

Inflation rose for the better part of 2022, driven by higher food and fuel prices, which have since decelerated. 

The slow increase in the price of goods and services has been due to a tight monetary stance, in which, the Central Bank has since August maintained a high Central Bank Rate of 10 percent, amid existing local and international vulnerabilities. 

However, the Fitch projections contradict earlier Bank of Uganda’s forecast, which in December, had said that inflation was likely to drop to between 6 and 8 percent by the end of this year before stabilising around at 5 percent.  The forecast had been a revision by 2 percent due to rapid deceleration of fuel prices, which had in the period ended 2022 been the highest driver of inflation. 

Dr Michael Atingi-Ego, the Bank of Uganda deputy governor, said then that the “revision in the forecast is due to dissipating impact of earlier increases in global commodity prices, subdued domestic demand, effects of the current monetary policy stance, expected decrease in global inflation, and lower exchange rate depreciation”. 

Fitch also noted that during 2022, the economy grew by 4.9 percent lower than the 5.9 percent in 2021 but remained “resilient against the global economic slowdown and an Ebola outbreak in the fourth quarter of 2022. 

However, Fitch reported that growth will rise to 5.5 percent in 2023, before rising further to 6 percent in 2024, driven by a recovery in agriculture due to better weather conditions and ramp-up of oil infrastructure development. 

The report also notes that the expected increase in oil production activities leading to 2025 will provide a further boost to gross domestic product growth, which will eventually rise further after first oil.

Government and oil development partners have indicated that Uganda is expected to achieve first oil by 2025.