How high inflation rate will affect you

Inflation has hit 6.3 percent in Uganda, the fastest pace since March 2017, as authorities blamed the pain of skyrocketing fuel and food prices on Russia’s invasion of Ukraine and the Covid-19 pandemic-induced shortages.    

Annual headline inflation rose from 4.9 percent in April due to sharp increases in fuel prices by 54 percent; a surge in prices of matooke, tomatoes, pumpkins, maize grain, personal care, soap and other necessities of life.   

ALSO READ: Prices of food products increase by 9.7 percent 

Statistics released by Uganda Bureau of Statistics (Ubos) have added pressure to a population that had excruciatingly endured months of higher commodity prices across much of the country, leaving the hand-to-mouth households on the brink of starvation.

Presenting the latest consumer price index at Statistics House in Kampala, Ms Kauda Aliziki Lubega, the Ubos director of macro economics, explained that inflation as measured by the consumer price index for Uganda for the 12 months to May, increased to 6.3 percent up from 4.9 percent in April on account of increases in the commodity prices under food and non-alcoholic beverages.

“When you compare price levels of May 2021 and May2022, you realise that the prices have been increasing throughout and when you look at the inflation, it is now registered at 6.3 percent compared to what we had of 1.9 percent,” Ms Lubega said. 

She, however, revealed that for restaurants and accommodation services, education services, information and commutation, the prices have reduced but this has had insignificant impact on inflation levels in the country.    

The business community and the academician yesterday reacted with consternation and warned that the sharp rise in Uganda’s inflation will result in depletion in liquid assets and a slowdown in purchasing power of the general public because prices of goods and services are becoming expensive for local citizens.

Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.

Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year commonly known as annual inflation.

The high and unstable rates of inflation can be harmful in the sense that if prices are unpredictable, it is difficult for people to plan how much they can spend, save or invest in the key sectors of the economy.

The other cause of Uganda’s high inflation is being attributed to the energy fuels and utilities charges/prices due to global supply chain disruption thus resulting in the rise of the oil prices at the pump level.
 
What experts say

In a telephone interview with Daily Monitor yesterday, Prof Augustus Nuwagaba of Makerere University said the rise in inflation is not good for the economy and the people. 
“The rise in inflation rate leads to depletion/erosion of the liquid assets, which is not good for people and the economy at large. It is only land and buildings which may not experience erosion in value,” Prof Nuwagaba explained.
“Consumers’ purchasing power – the real value of money – is reduced. If prices are increasing faster than people’s nominal incomes, they will be able to afford fewer goods and services over time. The rise in inflation affects the purchasing power of people which results in slowdown in economic activities and may translate in slower economic growth,” he added.

Depreciation of the shilling

Prof Nuwagaba and other economists warned that when inflation is high, it makes the national currency lose value and requires people to have more money to purchase available goods and services.

ALSO READ: Ugandans brace for hard times as commodity prices soar

As already explained by the central bank and the Ministry of Finance officials, Prof Nuwagaba and other economists, however, agree that the rising rate of inflation in the country is being caused by external factors such as Russia-Ukraine war, leading to disruption in global supply chain of some food items and the rise in international oil prices.

The chairman of Kampala City Traders Association (Kacita), Mr Thadeus Nagenda Musoke, told Monitor last evening that the rising inflation level increases their operational costs while conducting the various business activities in the country.

Mr Musoke explained that the prices of oil, transport fares and other imported products have gone up and at the same time the shilling is also experiencing depreciation against the US dollar.
“The rise in inflation affects the purchasing power of the general public. When the prices of goods and services are high, they (people) reduce purchase of different commodities that are in the market,” Mr Musoke explained. 
He added: “What this means to us business people is that we are selling very little items and as such, it affects our profitability.”
 
Lending rates set to increase
Mr Musoke revealed that the rise in inflation will clearly force the Bank of Uganda to raise the Central Bank Rate (CBR), which it kept low to support the economic activities of the private sector.
“What we are worried about is the direct oil prices. We need tangible policy moves that can mitigate the impact of the rising commodity prices,” Mr Musoke said.   
 
Core inflation

Bank of Uganda uses the core inflation to control the rate of the country inflation at 5 percent; the core inflation rate excludes the volatile commodities such as energy, fuel and metered water from the basket of the consumer price index.

Latest statistics from Ubos show that Uganda’s Core Inflation for the 12 months to May increased to 5.1 percent, up from 4.3 percent registered in April. This is mainly attributed to annual other goods inflation that increased to 7.8 percent for the 12 months to May up from 6.6 percent recorded in April.

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In addition, Ms Lubega said annual ‘services’ inflation increased to 2.0 percent for the 12 months to May 2022, up from 1.7 percent April.

During the period, Ubos revealed that annual energy fuel and utilities inflation (EFU) had increased to 12.0 percent, up from 11.2 percent in April.

Ms Lubega explained that the increase in EFU inflation was mainly due to annual liquid energy fuel inflation that increased to 34.9 per cent in May, up from 30.3 percent in April 
“Specifically, diesel inflation increased to 54.0 percent in May, up from 38.0 percent registered in April. Kerosene inflation increased to 23.0 percent in May, up from 9.5 percent in April,” she said.

By yesterday, the crude oil per barrel was trading at $123.94 (Shs460,000)  following the European Union decision to put a ban on Russian oil import flow in block by 90 percent by the end of the year.

The official exchange rate was at Shs3,777.43 buying per US dollar and selling was at Shs3, 787.43 per US dollar.

Inflation

Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.

Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year commonly known as annual inflation.

The high and unstable rates of inflation can be harmful in the sense that if prices are unpredictable, it is difficult for people to plan how much they can spend, save or invest in the key sectors of the economy.
 

Effect
The high and unstable rates of inflation can be harmful in the sense that if prices are unpredictable, it is difficult for people to plan how much they can spend, save or invest in the key sectors of the economy.