Rains seen easing Uganda food price pressure

Uganda's deputy central banker said on Wednesday heavy rains were expected to ease the headache of high food price and forecast inflation was on target to slow to near single digits by the end of the year.

Like other east African countries, Uganda was hit by a rapid jump in consumer prices last year, due in part to a slump in the local currency. The Bank of Uganda slammed on the monetary brakes, triggering a rally in the shilling and halting the inflation rot after the year-on-year rate peaked at over 30 percent.

"We had concerns that the exchange rate and food prices were feeding into non-food (inflation), that is why we took action," Louis Kasekende told Reuters on the sidelines of the annual meeting of the African Development Bank (AfDB).

"But we pray that with all these good rains, food prices will no longer be a big problem for us so that we are mainly dealing with non-food (inflation)."

Uganda has experienced above average rains in the country's main food producing areas in the west and southwest of the country since March.

Kasekende said it was hoped these rains would help produce bumper hardests, easing price pressures on crops such as maize, bananas, beans and other key food items.

May inflation data is due to be released on Thursday, a day before the central bank holds a rate setting meeting.

Uganda's central bank held interest rates at 21 percent at the beginning of this month and put off any immediate easing, citing rising food prices. It did, however, signal a likely drop in borrowing costs later in 2012.

Year-on-year inflation slowed to 20.3 percent last month from a revised 21.1 percent in March but the bank said rising food costs and oil price uncertainties both posed upside risks.

Kasekende expected the slowdown in consumer price rises to accelerate in the third quarter of this year.

"Last year between June and September inflation increased by big margins so we shall benefit from base effects," he said.

"We expect (inflation) to fall between now and December 2012 and we will most likely be close to single-digit inflation in December."

Reuters
30-May-2012