Inflation surges as BoU keeps rate unchanged

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Inflation surges as BoU keeps rate unchanged
Food prices | Courtesy

The resurgence comes after components such as annual church wedding fees increased as much as 30.7 percent compared to 9.5 percent registered in the year ended December 2023.

KAMPALA | Inflation surged in the month of January 2024, inching higher to 2.8 percent from 2.6 percent, according to data from Uganda Bureau of Statistics.

The resurgence comes after components such as annual church wedding fees increased as much as 30.7 percent compared to 9.5 percent registered in the year ended December 2023.

Annual Energy Fuel and Utilities (EFU) also resurged by 7.4 percent compared to 6.4 percent.

The Annual headline inflation for January 2024 has substantially declined in line with expectations from Bank of Uganda (BoU) from around 10 percent in January 2023 last year.

The uptick on service inflation specifically on passenger transport like taxi & car hires that ticked higher by 5.6 percent on YoY basis from 2.1 percent in December 2023.

The headline inflation is still below BOU's medium term target of 5 percent.

With an aim to steadily get inflation anchored at the 5 percent target as well as allow the likely expected exchange rate depreciation from stronger inflation, BoU in their most recent MPC meetings decided to keep the benchmark interest rate at 9.5 percent with an aim to support achievement of inflation anchor closer to medium target.

The Uganda Shilling started the year at a relatively weaker tone underpinned by strong USD demand in the inter-bank market as well on subdued dollar inflows by NGOs and exporters.

The steady increase in the US Dollar is largely premised on the expected delay in policy shift by the Federal Reserve Bank in the US.

With the first rate cut in the US expected in H2 2024, it is likely that dollar demand by commercial banks and money managers stays elevated in the short term to medium term.

With no indications of an expected rate hike by BOU, it could dampen sharp recovery of losses against the US Dollar.

There will likely be some muted decline towards end Q3 2024 as dealers & traders meet their tax obligations supported the Uganda shilling.

Uganda's GDP is also to pick up pace in the course of 2024 rebounding on a steep slowdown experienced in 2023.

This is also in line with expectations with IMF which is forecasting growth upwards of 5.4 percent.

There has been a slowdown in some economies like the UK and Japan that entered technical recessions in Q4 2023. With softer global inflation expected in 2024, there are risks present.

Stanbic Bank Uganda's Composite Purchasing Managers Index (PMI) fell to 54 in January 2024 but remains largely high above 50 indicating strong expansion and increase in the consumer base.

The PMI has stayed above 50 since 2022 further providing hints on a robust economy.

Uganda's business confidence improved in January 2024 rising to 60.1 from a revised 59.6 for December 2023 underpinned by strong sectors like construction, manufacturing and wholesale that all registered improvements.

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