Uganda Sees Inflation Rate Moving to Double Digits This Year

  • Fiscal deficit seen widening to 6.6 percent in FY 2015-16
  • Revises December inflation after index base year changed

Uganda’s inflation rate could climb to double digits this year under pressure from rising food and energy prices and the effects of a depreciating currency, the central bank said.

December’s annual inflation rate was 8.4 percent, from a revised 9.3 percent, after the nation changed the base year of its index to 2009-10. 

Price pressures are being felt across the region as East African currencies have declined. In Kenya, the inflation rate has breached the central bank’s target band for two consecutive months, coming in at 7.8 percent in January, while in Tanzania the consumer price index increased every month in the fourth quarter.

“Consumer prices are anticipated to increase further reflecting mainly the exchange rate pass-through and the increase in food prices, whilst output is expected to be less dynamic,” Bank of Uganda said in a statement on its website. “The risks to the medium-term inflation outlook are on balance sufficient to justify a tighter monetary policy stance.”

The central bank raised its benchmark rate by a total 600 basis points to 17 percent last year as the shilling depreciated by almost 22 percent against the dollar. The currency has lost a further 2 percent so far in 2016. It gained some ground against the dollar between October and December, the bank said, partly as a result of the bank’s tightening policy and a slowing of the domestic economy.

The economy of Africa’s biggest coffee exporter expanded by 6.7 percent in the third quarter of 2015, according to the statistics agency’s data, slower than the 7 percent registered in the previous three months.

The nation’s fiscal deficit is projected at 6.6 percent of gross domestic product in the 12 months ending June 2016, down from an earlier estimate of 7 percent, but still wider than the 4.6 percent reached in 2014-15, the bank said. 

The government will reduce its budgeted expenditure by 480 billion shillings ($137.7 million) this financial year on account of some slow-moving projects and by cutting back recurrent costs, according to the statement.

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