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Ugandan inflation nudges higher in JanuaryPublish Date: Feb 03, 2014
Ugandan inflation nudges higher in January
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Prices of food and non-alcoholic beverages rose 1 percent from the previous month.
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NAIROBI - Kenya's year-on-year inflation rate inched up to 7.21 percent in the year to January, the statistics office said on Friday, coming closer to the 7.5 percent upper threshold of the central bank's target range.

In neighbouring Uganda, headline inflation also rose, to 6.9 percent in January from 6.7 percent the month before. Core inflation fell to 4.6 percent from 5.7 percent.

The two east African economies have enjoyed relatively manageable inflation in the past two years. High commodity prices in global markets and drought at home had caused inflation to soar in 2011.

Kenya's policymakers held interest rates at 8.5 percent for their fourth straight meeting this month, citing stability in key indicators such as inflation.

Though the January inflation increase is small, it is the first since September, when it jumped to its 2013 high of 8.29 percent after a new sales tax came into force. Traders said it is unlikely to affect policy for now because the outlook for prices is still benign.

"Headline inflation remains contained, with major threats expected to escalate from May onwards due to grain imports and potential negative base effects," said Alex Muiruri, a fixed-income trader at African Alliance Investment Bank.

Prices of food and non-alcoholic beverages rose 1 percent from the previous month. Housing, water, electricity and gas prices were up 0.87 percent. Education costs rose to 3.7 percent, reflecting a seasonal adjustment at the start of the new school year.

In Uganda, traders said policymakers were likely to leave rates unchanged in February after the decline in core inflation.

"It's also worth noting that commercial banks' lending rates are still high and BOU (the central bank) is eager to bring them down and a rate hike wouldn't serve that purpose," said Benson Okwenje, a trader at Stanbic Bank Uganda.

The central bank unexpectedly trimmed its benchmark lending rate by 50 basis points to 11.5 percent in early December, citing economic growth below potential.

Annual food inflation for the year ending in January rose to 11.1 percent from 9.2 percent in December, causing the slight rise in the headline rate.

Reuters

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