The governor bank of Uganda, Tumusiime Mutebile has announced that annual headline and core inflation fell sharply to 11.9% and 11.5% respectively in August this year from 14.3% and 15.4% in July. There was also a sharp fall in annual non food inflation from 19.1% in July to 16.0% in August which in previous months had been relatively sticky.

The governor says that since the beginning of 2012, monthly inflation rates have been very subdued with the headline and core inflation rates averaging 0.4% and 0.3% respectively which is an indication the disinflation process has remained solid.

Mutebile says that there are three main reasons for the decline in inflation. First, the food price stocks which inflicted the economy in 2011 have abated somewhat. Secondly, domestic demand pressures are weak, with the economy operating below potential output levels. Thirdly, the stability in the normal exchange rate since the start of the second quarter of 2011/12 has been translated into stable prices of trade of goods.

In the short term, he says, inflationary pressures are very likely to remain subdued. The Bank of Uganda now expects that annual core inflation will fall to single digits by the end of September 2012 and then gradually flatten out at around 5% in the first half of 2013.

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