Exchange rate fluctuations increase producer prices

By Samuel Sanya

Fluctuations in the dollar shilling exchange rate and growing competition has seen factory-gate prices for manufactured goods slightly recede despite a slight increase in construction and hotel rates.

Construction costs have inched up by 3.2% at the end of June, hotel and restaurant costs are up by 1% and manufacturing costs are up 2.1% from 2.3% at the end of May.

The Uganda Bureau of Statistics (UBOS) released producer price indices for the year ending June 2013 indicating subdued demand, growing supply and exchange rate changes as the main factors affecting the economy.

“The changes in the dollar-shilling exchange rates are behind the hike in steel bar prices. Long-term business contractors will have to escalate their construction costs by at least 3.2% on an annual basis,” Peter Opio, a UBOS director said.

It now costs 9.4% more in wages for workers doing civil works and building residential and industrial houses, timber is 1% more expensive, and concrete products are 2.4% more expensive.

On the other-hand, diesel prices have receded by 1.1% and the importation of cement has heightened supply with subdued demand leading a 1.8% reduction in prices.

William Anguyo, a UBOS principal statistician, says exchange rate fluctuations have led to a 4.5% increase in processed coffee prices.

Better contract terms for fish exporters have seen prices go up 5.5%, the dry spell and falling supplies led to a 12% hike in processed milk prices.

The stronger dollar has led to cheaper hotel rooms in shilling terms leading to a 1.5% reduction in short stay hotel accommodation despite an 8.7% increase in conference facility charges which are charged in shillings.

Bank of Uganda scales up daily dollar purchases

The Central Bank has scaled up its daily dollar purchases from the market from $2m (sh5.2b) to $3.1m (sh8b) in a bid to increase pressure on the shilling in the short term.

“Bank of Uganda has announced that it would scale up daily purchases. The motivation for this is to build reserves at a period when the Government is undertaking major infrastructure projects that require external borrowing,” Alpha Capital Partners’ Stephen Kaboyo says.

The Central Bank requires a strong reserve position to stabilise the shilling and service external debt. A huge dollar reserve amount improves investor confidence.