Uganda's inflation to remain high

KAMPALA, Aug. 6 (Chinese media) -- Uganda's inflation rate fuelled by rising food and fuel prices will remain high despite the central bank's efforts to keep it at bay, economists have said.

The inflation rate peaked to a three-year high of 13.7 percent in July from 12.5 percent in June as annual core inflation, which excludes food and energy, also rose to 12.8 percent in July from 12.1 percent in June, according to the state-owned New Vision daily on Wednesday.

The Bank of Uganda (BOU), the country's central bank, which targets core inflation, said it would tackle the high inflation rate by ensuring the monetary policy remained tight in line with what the economy needs to move forward.

"We will ensure money supply is tight to avoid fuelling inflation. While inflation has gone up, we are committed to returning to low and single-digit inflation in the short-term," Mary Katarikawe, the acting director of research at BOU was quoted as saying.

Lawrence Bategeka, a researcher at the Economic Policy Research Centre (EPRC), however, said seasonal factors and other external pressures point to high prices in the future.

"For the next three to four months, prices will increase as is the case at this time of the year, so inflationary pressures will remain high," he said.

Bategeka said despite the onset of the harvesting season, food prices would increase because of spike in demand at home and across borders.

"Schools will re-open in September. Harvesting will be complete so there should be high demand. This coupled with the demand for food from the region and industrial products will lead to a peak in prices," he predicted.

Bategeka noted that as the country nears the festive season, the demand for food and imported products would remain high.

"Inflation is a global phenomenon, which is making imports more expensive. When the traders bring in these goods and also in anticipation of the coming festive season, we should be importing some of this inflation," he said.

According to Bategeka, farmgate prices for most crops have reduced but it wasn't reflected in the market prices.

"Even when farmgate prices go down, seasonal advantages seem not to hold. Because fuel prices remain high, transport costs push the food prices high by the time it gets to Kampala and other markets."

World oil prices that had peaked to 145 U.S. dollars per barrel in recent months are currently hovering around 127 dollars.

He said that while the BOU expects success on the price front in the medium-term, increased demand, high food and oil prices remain a risk.

"The central bank will tighten monetary supply in the short-term, which is vital because if it doesn't, it will hurt economic growth. However, these should be complemented by long-term measures like dealing with the supply side that enhances productivity."

Bategeka suggested that the government urgently address the reduction in the cost of doing business and increase production of agricultural produce as some long-term measures.

"Constraining monetary expansion should be short-term, otherwise if you do it forever, you may strangle the economy. You don't want to kill the goose that lays the golden egg."