No end in sight for cost of living crisis

“The main driver was monthly food crops and related items inflation that increased by 3.8 percent in September 2023 from [a] 3.6 percent rise recorded in August 2023,” Ubos noted in a press release about consumer prices.

The nation’s statistical body attributes this to rising prices for vegetables, tubers, plantains, cooking bananas, and pulses, which rose by 3.5 percent in September compared to the 2.9 percent increase seen in August.

Some economic experts note that the heavy rains are partly to blame for this, as they have slowed down the distribution of food crops across the nation after rendering some dangerous roads impassable.

“As a result, the prices go up. The vegetable prices could have increased as well because of that broken supply link,” Mr Fred Muhumuza, an economics lecturer at Makerere University Business School, said.

This perhaps coincides with the Uganda National Meteorological Authority’s (UNMA) rainfall outlook for September to December 2023, which expects a second major rainfall season in most parts of the country.

El Niño impact

According to UNMA, this is due to the evolution of El-Niño conditions in the central and eastern tropical Pacific Ocean, which are expected to continue until the end of the forecast period.

Furthermore, the Indian Ocean Dipole (IOD) is expected to turn positive during this time.

The “positive” phase of the IOD typically indicates warmer sea surface temperatures in the western Indian Ocean and cooler sea surface temperatures in the eastern Indian Ocean.

This phase of the IOD can have several consequences for weather and climate patterns, not only in the Indian Ocean region but also in surrounding areas

Ms Madina Guloba, a senior research fellow and head of the Microeconomics Department at the Economic Policy Research Centre, says the bad weather is halting even the small food production in areas surrounding food baskets such as Masaka and Mbale districts.

Ubos official data shows that the agriculture sector suffered slow growth from highs of 9.3 percent in the fourth quarter of 2022 to lows of 2.1 percent in the same quarter of 2022/2023.

Uganda’s food production has recently been low, to the point where local markets have increasingly stocked and sold food staples from its neighbours in Kenya and Tanzania.

“The biggest consequence is that the local farmers are losing income. Traders are now importing this food because it’s cheaper compared to the stock in the local market and this works for them because business people look for profit,” Ms Guloba noted.

She added that there is also a possible creation of scarcity in the country in the food business because businesses have of late realised lower returns on investment and are trying to bridge that gap.

“Consumers are eventually affected by what they consume from food and utilities, which lowers their standards of living,” she said.

Belt-tightening

Uganda’s economists are concerned that the crisis has been ongoing for months and is now requiring consumers to adapt as the government cannot respond immediately. This is because issues such as unstable food production necessitate huge infrastructure investments, which are gradually rolled out to different dry areas.

“The high cost of living is expected to stabilise in months but the population needs to cushion its spending because controlling this situation takes some time to be realised,” Mr Muhumuza advised, adding that the situation “will squeeze […] budgets in the meantime.”

Ubos data shows that the most affected consumers in September price changes were those of mangoes, Irish and sweet potatoes, cooking bananas, and vegetables.

The prices for detergent powder, milk, and shoe polish increased as well.

Traders say the opening of schools has increased demand for food items such as maize, rice, and beans, despite the country’s low production and government restrictions on agro-importation.

“Uganda needs to boost its low food production. Kenya and South Sudan want our maize and yet our production is seasonal and has now become unpredictable. We need to mechanise the whole food production chain,” Mr Thadeus Musoke Nagenda, the chairman of Kampala City Traders Association (Kacita), said.

Uganda has focused on growing grain, particularly maize, for export receipts, lowering the growth of vegetables and fresh food, and increasing its appetite for importing staples from its neighbours, which puts a premium that arises from transportation costs.

Energy prices

The rate at which transportation costs increased by 0.6 percent between August and September as a result of the sharp increases in the cost of gasoline, diesel, and kerosene only served to exacerbate the situation.

Ubos data indicates that the increase in monthly Energy, Fuel, and Utility (EFU) inflation was primarily caused by a spike in the price of liquid fuel, which rose by 5.2 percent during the time period under consideration.

In particular, the cost of diesel and gasoline rose by 2.8 and 8.4 percent, respectively.

“The energy prices have increased in the two or three consecutive quarters and that should be a concern for the authorities because they need to find a way to control it. It partially comes from the increased global oil prices and it spills over to our food prices through logistic costs,” Mr Muhumuza said.

Uganda’s Energy ministry says it has little control over these rising pump prices, but it is working with Kenya and Tanzania to prevent any potential fuel shortages.

“The Organisation of the Petroleum Exporting Countries (Opec) has decided to reduce oil production to manage prices on its end and yet demand is surging globally due to the winter seasons, as well as China’s demand for fuel to revamp its economy,” Ms Irene Bateebe, the permanent secretary in the Ministry of Energy and Mineral Development, said.

“Uganda is a net [fuel] importer and, because of that, we access these global shocks. However, internally, [the] government is making sure there is continued fuel supply by easing fuel transportation with our neighbours in Kenya and Tanzania so as to ensure fuel reaches on time. That’s why we do not have a shortfall; it’s only high fuel prices,” she added.

In the medium term, Uganda anticipates that the liquid fuel crisis will abate. Data from the Energy ministry shows the nation imports 6.5 million litres of fuel on average every day.

Construction inflation

Uganda Bureau of Statistics (Ubos) also revealed last Friday that construction inflation was registered at 1.8 percent in the year ending August 2023, compared to 2.0 percent registered in the year ending July 2023. This was mainly attributed to annual construction sector inflation of inputs of specialised construction activities like electrical. Plumbing and finishing a house was registered at 0.7 percent compared to 1.1 percent in July 2022.

Ms Irene Musiitwa, a senior statistician (macro-economics) at Ubos, said the inflation for specialised construction activities like demolition and site preparation was registered at minus 7.7 percent in the year ending August 2023, compared to minus 5.7 percent in July.

“In addition, the construction sector inflation of inputs for electrical, plumbing and other construction installation activities was registered at 4.1 percent in the year ending August compared to 4.8 percent in July,” she said.

She said annual construction sector inflation of inputs into civil engineering works was registered at 1.2 percent in August compared to 1.4 percent in July. This was mainly attributed to inflation of inputs for construction of roads and railways that was registered at 0.8 percent in August compared to 1.0 percent in the previous month.