How escalating transport costs hit other sectors

by Business Times writer
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Uganda’s annual inflation as measured by the Consumer Price Index (CPI) for the 12 months to May 2024 increased to 3.6 percent compared to 3.2 percent registered in the year ended April 2024, according to the latest CPI report released by Uganda Bureau of Statistics (UBOS).

The report indicates that passenger transport by road Inflation increased to 4.4 percent in the year ending May 2024 compared to 2.2 percent registered in the year ended April 2024.

The significant increase in passenger transport costs has deeply impacted daily commuters and the wider economy.

UBOS Executive Director, Dr Chris Mukiza said the increasing transport costs are putting a significant burden on both households and businesses, causing financial difficulties for many.

“This sharp increase in passenger transport costs is a major concern for Ugandans, especially those who rely on road transport for their daily commute,” said Mukiza.

He added: “The rising costs are adding financial strain to households and businesses alike.”

The report attributes the rising transport costs to a combination of factors, with the significant hike in fuel prices being a major contributor to this upward trend.

It indicates that Annual Energy Fuel and Utilities (EFU) Inflation increased to 9.5 percent in the year ending May 2024 compared to 7.9 percent registered in the year ended April 2024.

“Liquid energy fuels inflation increased by 4.8 percent in the year ending May 2024 compared to 3.9 percent in the year ended April 2024. Specifically, Petrol prices increased by 8.1 percent in May 2024 compared to 6.9 percent in April 2024 and Diesel prices increased by 1.1 percent in May 2024 compared to 0.1 percent registered in the year ended April 2024,” the report reads.

According to the Classification of Individual Consumption According to Purpose (COICOP), the main drivers to the registered inflation were ‘Transport’ inflation that increased to 5.0 percent in the year ending May 2024 compared to 2.9 percent registered in the year ended April 2024.

Besides road transport, air transport costs have also experienced a significant surge. The annual inflation rate for air passenger transport soared to 11.7% in May 2024, a substantial increase from 2.8% in April. This notable escalation impacts not only local travelers but also international travel and logistics, potentially affecting tourism and business operations that rely on air travel.

The effects of increasing transportation costs are widespread, affecting individuals across various income levels and geographic regions.

The report indicates that Jinja Centre registered the highest inflation of 5.1 percent in May compared to 3.2 percent recorded in April. In Jinja, the annual transport inflation increased to 3.9 percent in May compared to minus 1.4 percent registered in April.

The second highest Annual Inflation was registered in Kampala High Income Centre at 4.6 percent compared to 4.5 percent recorded in April.

“This was mainly driven by Annual ‘Transport’ inflation that increased to 6.0 percent in May 2024 compared to 4.0 percent registered in April 2024,” UBOS report reads.

IMPACT ON OTHER SECTORS

Transportation by road and air is vital for the movement of goods and people. When the cost of transport goes up, the cost of many other things goes up because fuel drives the economy. Escalating transport costs create a cascade of effects that spread through multiple sectors, influencing prices, profitability, and consumer behavior.

The impact is particularly felt in industries reliant on transportation, such as manufacturing, retail, and agriculture.

For instance, when the cost of transporting goods increases, businesses encounter higher input costs. In an effort to sustain their profit margins, they typically pass these additional costs on to consumers. This results in price hikes across multiple sectors, including retail, manufacturing, and agriculture. Consequently, consumers bear the brunt of these rising expenses, feeling the impact in their everyday purchases and overall cost of living.

In the agricultural sector, the dependency on efficient and cost-effective transport for distributing produce means escalating costs lead to higher prices for food products, impacting consumers directly.

Similarly, in the services sector, businesses such as logistics, tourism, and hospitality are directly impacted. For logistics companies, higher transport costs mean thinner profit margins and the need to pass on these costs to clients, affecting the overall economy. Tourism also feels the pinch of high transport costs, potentially reducing the number of tourists and impacting local economies dependent on tourism revenues.

As the prices of goods and services rise, consumers tend to cut back on their spending, resulting in decreased demand. This reduction often leads to a slowdown in economic activity, impacting growth in multiple sectors.

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