Thursday 31 March 2011

Ugandan inflation in shock leap to double-digits

Thu Mar 31, 2011 3:25pm GMT
 
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KAMPALA (Reuters) - Uganda's year-on-year inflation rate leapt into double digits in March, driven by surging food costs, piling pressure on policymakers to curb the rising prices.
Food prices, which carry a 27.2 percent weighting in the consumer price index (CPI), jumped 11.9 percent month-on-month to push the headline rate up for a fifth straight month to 11.1 percent from a revised 6.4 percent in February.
Against March last year, food prices were up 23.6 percent, official date showed on Thursday. Among those, food crop prices were up nearly 30 percent.
"Obviously I didn't expect a jump so high and yes, one might speculate that it will probably put some considerable pressure on policy planners," said Bill Page, a partner at Deloitte & Touche in Kampala.
Rising global food costs, the high price of oil on world markets and a local currency that continues to hover just off a record low combined to shove local prices higher.
The shilling fell through a series of all-time lows earlier this year, hurt by declining export earnings, speculative trading by offshore players and soaring greenback demand.
At Thursday's market close, local commercial banks offered the shilling at 2,395/2,400 per dollar.
The Uganda Bureau of Statistics said the CPI climbed 4.1 percent in March from a month earlier compared with 1.7 percent in February.
"We'll probably see the government raising interest rates ... and possibly engaging other tools to stem the rise," said Mona Muguma, an analyst at African Alliance.
Other analysts said a tightening of monetary policy would only offer a short-term remedy.
"When you have a swelling urban population while food output remains flat like what's happening here you'll certainly see prices going through roof. This is fundamental and needs a long term solution," said Francis Kamulegeya, partner at PriceWaterhouseCoopers .

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