The Governor Bank of Uganda, Emmanuel Tumusiime-Mutebile has spoken out on the current high commodity prices.
Speaking at the Uganda Bankers Association dinner, Mutebile admitted the current food prices threatened causing core inflation though, this had been identified six months back and control measures were put in place to avoid core inflation.
“Some of the upside risks to core inflation, which we had identified six months ago, notably the rising food and fuel prices, and the risk of further exchange rate depreciation, have abated somewhat. Food crop prices have risen steeply – annual food crop inflation was nearly 22 percent in April – but the pass-through to core inflation has been muted,” he told bankers.
“Our forecasts indicate that core inflation should be in line with our 5 per cent policy target in 12 months’ time, which is the time horizon for our monetary policy decisions. Our 12 month forecast for inflation has remained largely unchanged since the end of last year.”
He added that the exchange rate has also been relatively stable in the first half of 2017.
“The nominal effective exchange rate, which takes into account exchange rate movements of the Shilling against all our trading partners, has only depreciated by 1.6 per cent since the end of 2016. We also expect that the current food price shock should have started to ease by the third quarter of this calendar year, as the better weather that we are now experiencing boosts harvests, and that will help to lower headline inflation.”
Meanwhile, Mutebile also refuted the claim that the economy is suffering from a lack of demand.
“Of course, some individual industries may not have sufficient demand to sell all of their output – that will always be the case in any economy – but at the aggregate level there is little evidence to indicate that a lack of demand has depressed real economic growth. If that were the case, we would expect to see that the sectors most badly affected would be the non-traded goods sectors of the economy, because these sectors are dependent fully on domestic demand.
Adding “In fact the very opposite is the case. The services sector, which consists predominantly of nontraded goods industries, did much better than both industry and agriculture in the first half of the fiscal year, while our composite indicator of economic activity indicates that services also grew faster than the other sectors in the third quarter. That suggests that a shortage of aggregate demand is not the cause of the slowdown in growth in 2016/17.”
Mutebile’s remarks come at a time when a Kilogram of sugar costs more than Shs7000 while a kilo of posho for the first time costs more than Shs4000.