Bank of Uganda (BoU) has warned that the high fuel prices could lead to a further rise in prices of food and other necessities in the coming months.
In a monetary policy statement for the month of January released on Monday, February 14, 2022, BoU Deputy Governor Dr Michael Atingi-Ego while inflation at the moment remains subdued, this could change in months.
“While demand side inflationary pressures remain subdued, upside inflationary risks remain, and inflation could accelerate in months ahead owing to the rises in energy and food prices. Moreover, household spending, particularly on services, is forecast to be higher due to the full opening of the economy,” the statement reads in part.
“The rise in inflation will also reflect strong producer price inflation domestically and import prices,” the statement adds.
The January 2022 inflation outcomes indicate that annual headline inflation declined to 2.7 per cent while annual core inflation declined to 2.3 per cent, from the 2.9 per cent reported for both in December 2021, despite the contained rise in food crop, and energy, fuel, and utilities (EFL1) prices.
But BoU says the downturn has largely been driven by a decline in transport costs because of the lifting of travel restrictions.
In the medium-term (2-3 years ahead), as demand recovers, BoU says inflation is forecast to rise but stabilise around the 5 per cent target, contingent on the evolution of the pandemic.
“There could be inflation surprises, however, because of a stronger rise in food crop, commodity and imports paces, and the exchange rate depreciation,” the central bank says.