Rwanda’s inflation rate trends up, Uganda now projects 5pc

A fresh food market in Kigali. Rwanda’s has become the third country in East Africa to report an increase in its inflation rate for a period of two consecutive months or more. Photo/File  Nation Media Group

By Hellen Githaiga, The EastAfrican

Posted  Friday, October 18  2013 at  15:53

In Summary

• Rwanda’s has become the third country in East Africa to report an increase in its inflation rate for a period of two consecutive months or more.
• In September, Kenya’s inflation rate jumped for the fourth consecutive month to 8.29 per cent from 6.67 per cent in August, 6.02 per cent in July, 4.91 per cent in June and 4.05 per cent in May.
• Uganda’s rose to 8 per cent in September from 7.3 per cent in August, 5.1 per cent in July and 3.6 per cent in June but Bank of Uganda projects 5 per cent by the first half of 2015.

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Rwanda has become the third country in East Africa to report an increase in its inflation rate for a period of two consecutive months or more.

The regions smallest country this week said that prices of basic goods and services rose by 5.1 per cent in September, a faster pace than the 4.04 per cent registered in August and 3.52 per cent in July.

In July Rwanda’s inflation rate had slowed from 3.68 per cent reported in June.

“For the second time, the rise in inflation is mainly explained by the increase in vegetable prices which shot to 15.6 per cent from 9.6 per cent in August,” said Rwanda’s Ministry of finance and economic planning.

Higher inflation rates over an extended period of time indicate that prices of basics may be rising faster than incomes and this piles pressure on households reducing disposable incomes.

READ: EA countries revise economic growth projections upwards

As a result, households will spend more, save or invest less and this can have a negative impact on the long term growth of an economy.

In September, Kenya’s inflation rate jumped for the fourth consecutive month to 8.29 per cent from 6.67 per cent in August, 6.02 per cent in July, 4.91 per cent in June and 4.05 per cent in May.

Uganda’s rose to 8 per cent in September from 7.3 per cent in August, 5.1 per cent in July and 3.6 per cent in June.

Bank of Uganda (BoU), in its monetary policy report highlights for October that was released this week said that it the inflation rate has been trending up as a result of the effect of drought that has resulted in decreased food production which has seen prices rise.

READ: Tanzania’s inflation falls to one-year low, Rwanda’s edges up

The banking regulator said that it the increase in food prices is temporary and should start to abate by the end of 2013 or the beginning of 2014.

“Once the effect of the drought on food prices dissipates, inflation is expected to stabilize at the Bank of Uganda’s medium-term target of 5 per cent,” said BoU in the highlights for October.

Core inflation - which does not track food and fuel prices and which stood at 6.9 per cent in September - is forecast to rise to around 8 per cent, then to decline to 7 per cent in 12 months’ time, before falling further to 5 per cent by the first half of 2015.

“Nonetheless there are upward risks to the inflation forecast, such as stronger than anticipated domestic demand growth in the current fiscal year and a weaker balance of payments,” said BoU.