Inflation to hit 14% â€" experts
May 19, 2005
UGANDANS should gear up for tougher times ahead as economists predict higher food prices due to rising oil prices and a weakening shilling that will lift inflation to 14%.
By Steven Odeu
UGANDANS should gear up for tougher times ahead as economists predict higher food prices due to rising oil prices and a weakening shilling that will lift inflation to 14%.
“While increase in transport costs will feed through the other consumer price indicators, we have revised the average inflation forecast for this year to 11.4% from 9.3%, with the overall inflation rate will end the year at around 10%,†said Martin Owiny, the general manager of Stanbic Investments Management Services, in a monthly report.
In April, inflation rose to 13% due to sharp increases in food and fuel prices.
However, the high inflation rate reflects the low base established last year, when the overall rate was below 1% and the food inflation rate was in negative.
The report says a likely increase in underlying inflation, which excludes food prices, and seasonal factors on the exchange rate, point towards higher short-term interest rates in the next few months as Bank of Uganda issues more Treasury bills to sterilise an increase in inflows.
The report projects that imported inflation is likely to be fanned by the recent weakness of the shilling, with the local currency having lost ground in recent weeks to touch sh1,807 against the dollar during the last week of April before pulling back to around sh1,752 for the greenback.
“Although the central bank is likely to support the currency, there are indications it will remain under pressure in the next few weeks as corporate demand for foreign currency remains firm and foreign exchange inflows low,†said the report.
Reports that UK withheld 5m pounds in budgetary support, which was to be disbursed in March, are likely to keep the shilling under pressure. The tranche formed part of the 40m pounds committed for the budgetary support in the 2004/05 fiscal year. The UK indicated that the next tranche, due in September, will be subject to an assessment of the political situation.
Ends
UGANDANS should gear up for tougher times ahead as economists predict higher food prices due to rising oil prices and a weakening shilling that will lift inflation to 14%.
“While increase in transport costs will feed through the other consumer price indicators, we have revised the average inflation forecast for this year to 11.4% from 9.3%, with the overall inflation rate will end the year at around 10%,†said Martin Owiny, the general manager of Stanbic Investments Management Services, in a monthly report.
In April, inflation rose to 13% due to sharp increases in food and fuel prices.
However, the high inflation rate reflects the low base established last year, when the overall rate was below 1% and the food inflation rate was in negative.
The report says a likely increase in underlying inflation, which excludes food prices, and seasonal factors on the exchange rate, point towards higher short-term interest rates in the next few months as Bank of Uganda issues more Treasury bills to sterilise an increase in inflows.
The report projects that imported inflation is likely to be fanned by the recent weakness of the shilling, with the local currency having lost ground in recent weeks to touch sh1,807 against the dollar during the last week of April before pulling back to around sh1,752 for the greenback.
“Although the central bank is likely to support the currency, there are indications it will remain under pressure in the next few weeks as corporate demand for foreign currency remains firm and foreign exchange inflows low,†said the report.
Reports that UK withheld 5m pounds in budgetary support, which was to be disbursed in March, are likely to keep the shilling under pressure. The tranche formed part of the 40m pounds committed for the budgetary support in the 2004/05 fiscal year. The UK indicated that the next tranche, due in September, will be subject to an assessment of the political situation.
Ends