Food prices continue to drive inflation down

Data from Uganda Bureau of Statistics (UBOS) indicates that annual headline inflation dropped to 5.2% in August, increasing the purchasing power of Ugandans.  

Inflation dropped from 5.7% that was recorded in July, the third straight reduction in inflation due to the onset of the rains. This has resulted in lower food prices, according to Sam Kaisiromwe, the senior UBOS Statistician. 

"The main driver in food inflation was the decline in prices of fruits from 24.2% in July to 17.4% in August," Kaisiromwe said.

The data was released on Thursday at the UBOS offices in Kampala.

At the same time, annual core inflation rate, which excludes food, fuel, metered and electricity prices, which are volatile to price changes, also dropped to 4.1% in August, compared to 4.5% recorded in July.

This is below Central Bank's medium target to control core inflation at 5%.

"Core inflation declined due to a drop in the cost of services such as education, health and transport to 3.3% in August from 4.0% for the period under review," Kaisiromwe said.

Dr Fred Muhumuza, a senior economist and lecturer at  Makerere University, attributed the drop in inflation to the harvest season, saying inflation majorly looks at the changes in prices of food crops and related items. 

"With seasonal changes and the abundance of food, inflation will drop," Muhumuza said.

Muhumuza added: "The coming down of core inflation shows we can maintain the CBR at 10% to stimulate economic growth and monitor interest rates."

Furthermore, other goods and services such as clothing and footwear, hair dressing and insurance declined to 4.6% from 4.9%.

Communication services too decreased to -7.7% in August from -2.1% recorded in July, especially the handsets and mobile internet services.

However, annual energy, fuel and utilities of electricity, charcoal, firewood, petrol, diesel, paraffin and cooking gas recorded a rate of 7.8%. 

Annual inflation for solid fuel such as charcoal and firewood increased to 7.1% compared to 6.7% recorded for the year that ended July 2017.

Muhumuza said the price of solid fuels increased because it is a rainy season, which makes the roads slippery and impassable, hence hard to reach.

Inflation by geographical centres indicates that Fort Portal was the hardest hit with 9.2% lower than 9.9%, followed by Arua at 8.9% from 7.7% and Gulu at 7.9% compared to 9.0% recorded the previous month.

The main drivers of Arua and Gulu inflation rise were; increase in prices of food and non-alcoholic beverages, housing, water, electricity, gas and other fuels.

Godfrey Magoma, a UBOS statistician, attributed the increases in different prices to the market forces of demand and supply.

On the other hand, month-on-month, headline inflation for the month of August increased by 0.2% from the 0.5% drop that was recorded in July.