Up Up Up: August Inflation in the EAC
Thursday, 01 September 2011
At the moment, Uganda leads the pack: Consumer price inflation rose again from 18.8% (revised) year on year in July 2011 to 21.4% in August, the highest level since 1993. As in the preceding months, the main pressure on consumer prices still come from food prices: According to data provided by the Uganda Bureau of Statistics (UBOS), food inflation rose from an already hefty 40.7% year on year in July to 42.9% in August. With 27.2%, food represents a little over a quarter of the consumption basket used to measure price increases. The Energy, Fuel and Utilities (EFU) Index remained practically unchanged at an annual 10.7%, compared to 10.8% in the preceding month. Countrywide, Gulu in northern Uganda has the highest headline inflation rate with 32.7%.

However, even core inflation – which excludes volatile food and fuel prices – jumped from 15.6% to 20% in August, far exceeding the Bank of Uganda (BoU) target of 5%, which it hopes to achieve in the next 12 to 24 months.

In Kenya, consumer prices rose from 15.5% year on year in July to 16.7% in August, with food price increases remaining at 24%. In the Kenyan basket of goods and services, food and non-alcoholic beverages are weighed at 30.4% of overall consumption. Prices for housing, water, electricity, gas and other fuels, weighed at 18.3%, rose by 13.8% year on year. The highest increase in prices was registered in the transport sector (weighted at 8.66%) with 24.31%.

The Central Bank of Kenya (CBK) had been adjusting its overnight accommodation rate for the banking sector to reduce arbitrage opportunities, but argued that tighter monetary policy would not address the high inflation rate which was mainly driven by food shortages.

Tanzania has not released its Consumer Price Index (CPI) yet, but it is expected to accelerate further from the 10.9% in June and 13% in July. Rwanda’s inflation rate is equally moving upwards, but is still in single digits: in July 2011, it accelerated to 7.14%, up from 5.82% year on year in June.

Perspectives

Weather has played an immediate role in East Africa’s price developments: Across the region, the drought has reduced food supplies and also affected hydroelectricity generation, which contributes around two thirds of energy generation. Uganda and Tanzania both suffer power rationing, and falling back on emergency thermal power generation has driven up energy costs, adding to the price pressures, and also put further pressure on the currency.

Uganda hopes that the delayed Bujagali hydropower facility will finally come on stream at the end of 2011, but energy generation from locally produced oil is expected to incur further delays as Tullow Oil have just stated that the date for the beginning of oil production is still not clear.

However, since droughts occur regularly, the failure of government’s long-term planning becomes more obvious, both with regard to the continued and often badly managed reliance on costly emergency energy generation and, again, with the ongoing dependence on rainfed agriculture and the sluggish response to early warning systems indicating food shortages.

In Uganda in particular, high consumer prices contribute to the risk of increased political volatility: for low-income groups who spend more than the 27.2% allocated to food in the overall consumer basket on food, the steep increase in food prices is serious challenge and feeds into the overall frustration with President Museveni’s government.



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