Uganda: Inflation down to 6.2%

Uganda's headline inflation rate has taken a significant plunge, declining from 8 per cent in May to 6.2 per cent, as reported by the Uganda Bureau of Statistics. This decline has sparked discussions about the driving forces behind this slowdown and the implications for the economy. To shed light on these matters, Peter Mboowa, the Head of Treasury at ABSA Bank Uganda, shared his insights in a recent interview with CNBC Africa. The reduction in headline inflation can be attributed to various factors affecting different facets that contribute to the overall inflation rate. Sectors such as Bokoa, energy, fuel, utilities, and food crops have all experienced a decrease in inflation rates. One influential factor is the base effects from the previous year, where inflation was on an upward trend. Additionally, general prices of goods and services have been on a downward trajectory compared to previous months. The opening up of global supply chains, a reduction in international fuel prices, and favorable agricultural yields have all played a role in driving down prices across different food categories like cassava flour, rice, and maize flour. This overall reduction reflects a positive trend in the economy, indicating improved affordability for consumers. Uganda's response to combat rising inflation has been described as aggressive, particularly in terms of implementing monetary policies. The country's efforts seem to be paying off, with positive outcomes materializing as a result. The Central Bank of Uganda took decisive actions such as raising the central bank rate and increasing the cash reserve ratio, which helped in draining liquidity from the market and curbing private sector credit growth. While these measures have been effective in stabilizing inflation, the central bank may exercise caution in adjusting monetary policies in response to the current inflation trends. Despite the considerable progress in lowering inflation rates, the cost of living and consumer prices are still relatively high when compared to historical levels. To fully reap the benefits of decreased inflation, further reductions in lending rates by the central bank could stimulate private sector credit growth, thus enhancing overall economic activities. Looking ahead, there is an expectation that inflation will continue to decelerate in Uganda. With the country's import-dependent economy susceptible to external inflationary pressures, the stability of the exchange rate will be crucial in sustaining the downward trend in inflation. Peter Mboowa expressed optimism about Uganda's economic outlook, foreseeing a continuation of the decreasing inflation trend and a potential closure of the year below the medium-term target of 5%. Despite external risks, such as geopolitical tensions and exchange rate fluctuations, Uganda's relatively stable currency provides a buffer against drastic inflationary shocks. The country's strategic monetary policies and proactive measures have set a solid foundation for economic stability and growth. As Uganda navigates through the ongoing challenges, the prudent management of inflation and monetary policies will be pivotal in sustaining the current positive trajectory. The insights shared by Peter Mboowa underscore the importance of a holistic approach to economic management, highlighting the interplay between inflation rates, consumer behavior, and sectoral dynamics in shaping Uganda's economic landscape.