Inflation in Uganda came in slightly lower than we had anticipated at 3.5 percent y/y in August versus our estimate of 3.6 percent. Core inflation dropped from 3.8 percent y/y in July to 3.5 percent in August as other goods and services slowed to 4.4 percent y/y and 2.0 percent y/y, respectively. As anticipated, food inflation continued to taper, coming in at 7.7 percent y/y in August versus 8.0 percent in July. Meanwhile, transport inflation remains in negative territory printing at -6.9 percent y/y in August versus -5.5 percent in July.
On a month-on-month basis, we have some concerns around the food component. It increased by 1.5 percent and remains the main reason that the month-on-month headline inflation ticked up by 0.6 percent. Meanwhile, housing water and electricity, as well as gas and other fuels and transport inflation increased by 0.9 percent m/m and 0.3 percent m/m, respectively.
Despite these monthly movements, reduced core inflation and general downward trend across most components suggest that the disinflation in the annual headline number is expected to continue for the rest of the year. The Bank of Uganda’s MPC has already initiated a cut, opting to lower the Central Bank Rate (CBR) by 50bp to 9.5 percent from 10 percent, given their view that inflation is broadly contained. We expect lose monetary policy for the rest of the year as the central bank continues to monitor the effects of the recent cut on the economy while observing risks around a resurgence of food inflation given concerns around El Nino and the impact that can have on general food prices.
