Country Report Uganda March 2010

Outlook for 2010-11: Inflation

Inflation is expected to ease back slowly over 2010-11 after two years of double-digit price rises. However, the heavy weighting of food in Uganda's consumer price index (27.2%) will place a floor under any fall in the inflation rate. Food inflation will be driven by regional demand (particularly from Southern Sudan and the DRC) and variable weather patterns, which will affect domestic food crop output. A loose monetary policy will fuel inflationary pressures as the authorities concentrate on supporting economic growth rather than tackling inflation. We forecast an average inflation rate of 9.1% in 2010, falling slightly to 8% in 2011 as better weather conditions in 2010 reduce food prices and the authorities tighten monetary policy slightly. However, the unpredictability of the El Niño weather pattern means that there is a risk of higher inflation if food crop production is negatively affected.

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