Uganda’s inflation rate as measured by the Consumer Price Index (CPI) has dropped to 3.9% in the 12 months leading up to July 2023, down from the previous 4.9% recorded in the year ending June 2023, marking the lowest inflation rate the country has registered since February 2022 when the country registered annual inflation of 3.1%.
The Uganda Bureau of Statistics (UBOS) attributed the slowdown in the annual inflation largely to the annual core inflation which slowed down to 3.8% in the year ending July 2023 compared to 4.8% registered in the year ended June 2023.
“The main driver to Annual Core Inflation [which excludes certain volatile elements that can experience sharp price fluctuations, such as food and energy prices] was the Annual Other Goods Inflation that registered 4.8% in the year ending July 2023 compared to 6% in the year ended June 2023,” reads UBOS statement in part.
The main drivers were maize flour inflation that registered 6.9% in July 2023 compared to 20.9% registered in June 2023, Cassava flour inflation that registered 13.1% in July 2023 compared to 34.6% registered in June 2023, Rice inflation registered 24.6% in July 2023 compared to 31.7% registered in June 2023, and Live chicken inflation registered 2.5% in July 2023 compared to 28.7% registered in June 2023.
In addition, Annual Services inflation declined to 2.5% in the year ending July 2023 compared to 3.3% registered in the year ended June 2023. This is attributed to Annual Passenger Transport Services inflation that decelerated to negative 7% in the year ending July 2023 compared to negative 3.9% registered in June 2023.
“The other driver to the slowdown in the Annual Inflation was the Annual Food Crops and Related Items Inflation that registered 9.3% in the year ending July 2023 compared to 12.3% registered in the year ended June 2023. This is attributed to Cooking Bananas inflation that registered 12.5% in July 2023 compared to 34% in June 2023. Irish Potatoes inflation that registered 13.1% in July 2023 compared to 29.6% registered in June 2023, Cabbage inflation that registered 4.6% in July 2023 compared to 37.4% registered in June 2023 and Carrots Inflation that registered 1.6% in July 2023 compared to 36.2% registered in June 2023.”
The annual inflation for Energy Fuel and Utilities decreased to -1.6% in July 2023 from -3.1% in June 2023. This decline was primarily driven by a decrease in Liquid Energy Fuels inflation, which recorded -17.5% in July 2023 compared to -11.9% in June 2023. Specifically, Petrol inflation dropped to -21.1% in July 2023 from -14.7% in June 2023, while Diesel inflation slowed to -21.0% in July 2023 from -16.5% in June 2023.
Annual inflation by income groups, geophysical areas
Figures by geographical areas and income groups revealed that Arua registered the highest inflation of 6.6% for the 12 months to July 2023 compared to 7.3% recorded in June 2023.
“This was mainly driven by annual ‘Clothing and Footwear’ inflation that increased to 3.9% in July 2023 compared to 2.0% registered in June 2023. In addition, Annual ‘Housing, Water, Electricity, Gas and Other Fuels’ inflation registered 8.7% in July 2023 compared to 7.9% registered in June 2023,” UBOS said.
The second highest inflation was registered in Gulu at 5.5% for the 12 months to July 2023 compared to 5.8% recorded in June 2023. This was mainly driven by annual ‘Housing, Water, Electricity, Gas and Other Fuels’ inflation that registered 16.2% in July 2023 compared minus 0.8% registered in June 2023. In addition, Annual Personal Care, Social Protection and Miscellaneous Goods’ inflation registered 7.8% in July 2023 compared to 5.4% in June 2023.
The least annual inflation was registered in Kampala High Income at 2.9% for the 12 months to July 2023 compared to 4.3% recorded in June 2023. This was mainly due to the annual inflation for ‘food and non-alcoholic beverages’ that registered 8.1% in July 2023 compared to 12.6% registered in June 2023. In addition, annual ‘Transport’ inflation registered minus 5.2% in July 2023 compared to minus 2.5% in June 2023.
Impact on the economy
The decline in inflation is a positive development for the Ugandan economy. It means that people will have more money in their pockets to spend, which can help to boost economic growth. It also means that the Bank of Uganda will have more room to maneuver in terms of monetary policy aimed at maintaining the annual core inflation to 5%.
The decline in inflation could lead to lower interest rates, increased consumer spending, and lower inflation expectations.
The Central Bank may keep interest rates low in order to support economic growth, and this in turn makes it cheaper for businesses to borrow money and invest, which could lead to job creation and economic growth.
On matters of increased consumer spending, with more money in their pockets, consumers are likely to spend more, which could also help boost economic growth.
The decrease in inflation indicates a positive recovery for Uganda’s economy, following the challenges of Covid-19 pandemic supply chain disruptions and the global economic shocks caused by the Russia-Ukraine conflict.
