Bloomberg News

Uganda’s Inflation Rate Surges to 18-Year High on Food Costs

July 29, 2011

(Updates with analyst comment in third paragraph.)

July 29 (Bloomberg) -- Inflation in Uganda accelerated to the fastest pace in 18 years this month as food prices surged, raising the prospect that the central bank may raise interest rates next week.

The inflation rate climbed to 18.7 percent in July, the highest since February 1993, from a revised 15.7 percent in June, the Uganda Bureau of Statistics said in a statement handed to reporters today in Kampala, the capital. Prices rose 2.2 percent in the month, it said.

The data means there is “a high likelihood that the Bank of Uganda will raise the central bank rate next week,” Mark Bohlund, senior economist at IHS Global Insight in London, said in an e-mailed note today. “The 18.7 percent reading is considerably higher than the 12-14 percent the central bank said it was expecting in the third quarter.

Last month, Uganda’s central bank introduced a new benchmark interest rate, which it set at 13 percent. The bank also plans to introduce inflation targeting in the fiscal year through June 2012, aiming for annual price growth of 7 percent in the first three years of the program. The central bank is scheduled to announce its latest monetary policy stance in Kampala on Aug. 2.

Food costs jumped 40.6 percent in the month compared with a 33.4 percent increase in June, as the cost of corn flour, sugar, bread and potatoes increased, the statistics bureau said.

“The near-term inflation outlook will continue to be determined by the food-supply situation, where Uganda has been considerably harder hit than neighboring Rwanda and Tanzania,” Bohlund said. He forecast inflation would average 14.3 percent in 2011.

Uganda’s shilling is Africa’s worst-performing currency this year after weakening 12 percent against the dollar, according to data compiled by Bloomberg. The shilling weakened 0.2 percent to 2,605 at 5:03 p.m. in Kampala today.

--Editors: Paul Richardson, Philip Sanders.

To contact the reporter on this story: Fred Ojambo in Kampala at fojambo@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net.


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