Fast-rising inflation rates are threatening the country's 6.4 per cent growth rate projection and making more Ugandans poorer. The consumer price index indicates that inflation hit 6 per cent in February, up from 5 per cent recorded in January 2011. The spiralling rates have seen price levels of food, rent, school fees, transport and other household items shoot up since January 2011.
Mr Leonard Mutesasira, a Kampala businessman, said as prices continue rising, there might be an increase in the defaulting rates on loans as people, especially those with fixed income, will see it wise to spend their money on basic necessities than on repaying loans.
Mr Mutesasira says rising inflation might constrain banks' lending for long term since banks have to factor in inflation in the lending interest rates.
The measure of wholesale inflation, the Producer Price Index for manufacturing, which measures changes in prices charged by producers, rose to 18.3 per cent in December 2010 , from 15.3 per cent in November of the same year.
Rising commodity prices
The rise was driven by soaring international prices of raw materials resulting from the depreciation of the shilling against major currencies, especially the US dollar, which is said to have brought in imported inflation from Uganda's trading partners like China where commodity prices have increased significantly.
As a result, prices for food products rose to 24.6 per cent during the period, up from 22.1 per cent. Prices for drinks and tobacco rose to 18.3 per cent, textile and foot ware prices went up by 7.3 per cent, while those for chemicals, paint, soap and foam products rose by 27.4 per cent.
Ubos says the shilling has been depreciating by an average of 15.4 per cent against the US dollar on a year-on-year basis since July 2010. Dr Augustus Nuwagaba, a poverty eradication consultant and professor of Economics at Makerere University, said rising inflation erodes the value of savings and could also prompt banks to raise lending rates.
He said high inflation consolidates the widening wealth gap in the country as low income earners feel the pinch more. "It also curtails investments due to low returns on investment and affects business planning and strategic investment decisions," he said.