KAMPALA, UGANDA - The Bank of Uganda has predicted a downward trend for food inflation in the country as the rainy season reaches the halfway mark.
The rise in prices of food, fuel and other commodities in Uganda, has led to massive demonstrations in major towns throughout the country commonly known as "walk to work" demonstration campaign.
The BOU reiterated that the surge in inflation, particularly food inflation is related to temporary factors like weather, which the bank stated has changed from dry period to a rainy season.
Food crops inflation last month jumped from 6.9%, it was in February, to 29.1%. This was also followed by a rise in energy, fuel and utility inflation that rose to 10.4% in March from 9.7% it was in February.
According to Adam Mugume the BoU director for research, while high prices for oil, food and other commodities fed the overall inflation, over the next few months, consumer inflation is likely to remain subdued.
"Some inflation expectations are rising in the short term, which is reasonable in light of commodity prices, but prices are projected to remain stable in the long run.
"In particular, over time, supply growth is expected to respond to higher prices as well as to ongoing rains, as it has previously done, easing pressures on food markets," explained Mugume.
Mugume added that the global food prices are projected to decline as well. "Although the exchange rate has contributed significantly to the short term volatility in inflation outturns and upside risks to inflation may increase if the rate depreciates by more than anticipated, should the shilling strengthen, the inflationary pressures may ease."
Mugume noted that there is no sign that Uganda's economy is collapsing. "This inflation will eventually go back to below 5%. No sign to show that Uganda's economy is heading to that of Zimbabwe."
International food, oil and commodity prices increased more than expected recently, reflecting a combination of strong demand growth and a number of supply shocks, and disruption to global oil supply posing risks to higher inflation going forward.
Global oil output also fell by around 700,000 barrels per day in March due to unrest in Libya and this partly contributed to the rise in the international oil prices.
If global supply were to chug along at March levels for the rest of 2011, inventory could slip to very low levels and this could result in further increases in oil prices which would then add more inflation pressures.
The high oil price is beginning to effect global demand for energy, according to the International Energy Agency. The growth in world oil demand has started showing signs of slowing over the last few months, affected by high prices.
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