Country Report Uganda March 2011

Outlook for 2011-12: Inflation

Uganda had a year of extremely low inflationary pressures in 2010, but the inflation rate is expected to pick up in 2011 and remain high into 2012. After falling for 13 consecutive months, inflation started to rise in November and accelerated to 5% year on year in January. Global food and oil prices are forecast to increase in 2011 and this will have a large impact; food accounts for 27.2% of the consumer price index and any fuel price increase hits landlocked Uganda hard in terms of transport costs. Currency depreciation will also add to import costs. Given the low base rate in 2010 and the poor prospects for a repeat of that year's good weather, we forecast that inflation will rise to 9.5% in 2011. Growing demand from higher economic growth and a potential loosening of fiscal policy will see inflation remain high, at 8.5%, in 2012. There is a risk of higher inflation if food production is adversely affected by unpredictable weather patterns.

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