Uganda: Global oil prices could push inflation above target

North Sea, Brent crude oil07 November 2013, Kampala – Uganda’s Central bank has said the country could see a slight increase in inflation due to an expected jump in oil prices.

Governor Emmanuel Tumusiime-Mutebile said on Monday that core inflation, a measure of the increase in prices of goods and services, minus food prices and utilities, is expected to rotate around 6.5 per cent to 7.5 per cent.

“On a positive note, food prices, which were one of the main drivers of inflation in August and September may have peaked, but it’s too early to be definitive,” Mutebile said.

He said there were still uncertainties that could see inflation rise again.

“..It [inflation] will fall back towards five per cent in 2015,” said Mutebile, while reading the November monetary statement. BoU says this does not warrant it to do some monetary tightening to curb inflation.

Director for Research Dr Adam Mugume says the aggregate demand has just started picking up and this does not call for any special intervention as it can still be accommodated. He said uncertainties were more on the part of global oil prices, which appear to be rising yet the central bank had no control over them.

According to the Uganda Bureau of Statistics, last month, price increases were recorded for petrol, diesel, paraffin, clothing, rent, and telephone tariffs, among others. With fuel prices likely to shoot up, they will influence the increase of the prices of other products as traders pass on the cost of transportation to consumers.

But in the medium term, Mutebile said, core inflation would fall further, which necessitated no change in the key monetary rate, maintained at 12 per cent for the third month running.

“… real economic growth is now close to the economy’s long term potential of 6-7 per cent growth,” Mutebile said.

Experts predicted the key rate would stay unchanged.

“As predicted the recent inflation dynamics have prompted BoU to indicate that no further tightening is required at this time,” says Stephen Kaboyo, the Manager Director at Alpha Capital.

– The Observer

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