WARNING: This is Version 1 of my old archive, so Photos will NOT work and many links will NOT work. But you can find articles by searching on the Titles. There is a lot of information in this archive. Use the SEARCH BAR at the top right. Prior to December 2012; I was a pro-Christian type of Conservative. I was unaware of the mass of Jewish lies in history, especially the lies regarding WW2 and Hitler. So in here you will find pro-Jewish and pro-Israel material. I was definitely WRONG about the Boeremag and Janusz Walus. They were for real.
Original Post Date: 2011-03-21 Time: 18:00:04 Posted By: News Poster
By Elias Biryabarema
In November 2008, Uganda’s annual headline inflation shot to a record high of 14.9 percent, capping months of a relentless fuel price bubble and adding to the multiple cruel blows that hit the economy that year – from a global recession to a drought that parched the country’s cropland, cut food output and increased prices.
From those grim levels however, food production rose on the back of better rains, triggering a gradual deceleration in headline inflation through 2009 and much of 2010.
The drop served enormous relief to consumers and businesses pressed by soaring costs of production before it bottomed out in October last year at 0.1 percent.
Two years later in November 2010, prices started climbing steeply again, and annual headline inflation touched a high of 5.0 percent in January, 6 percent in February and is forecast to be headed for 7 percent at the end of March. The Uganda Bureau of Statistics reported last week that the annual food price rate for February rose to 8.9 per cent, from 3.6 percent in just one month. Increase was seen in the prices of common staples like sweet potatoes, matooke, cabbage, tomatoes, green pepper, bitter tomatoes, fish, fresh milk, bread, margarine and refined oil, due to shortages in markets.
If the trend of short supplies and high prices for essentials like food, fuel and manufactured goods continues, experts fear that Uganda may be headed for double-digit inflation. This will sap businesses, strain consumers and undermine growth in an economy already struggling with an election-related slump.
Nicholas Malaki, country director for PineBridge Investments reckons that “if the food production outturn remains bleak”, the building price bubble will push Uganda’s headline inflation into double digits by July.
The other major factor driving inflation is the weakening shilling.The combination of declining export receipts, soaring demand for the greenback, political uncertainty and speculative trading by offshore players has maintained the local currency under unremitting pressure since late last year, significantly eroding its value against the dollar.
According to Reuters, the shilling (now at 2380 per US$) has lost 15 percent of its value against the dollar in the last 12 months.
Uganda being a net importer, depreciation of the local currency pushes up prices of imported goods, stirring inflation.
When the shilling dropped to an all time low of 2,400 against the dollar in January, Bank of Uganda Governor, Tumusiime Mutebile issued a statement vowing to aggressively intervene in the market to stabilize the weak currency.
“I want to stress that we are not indifferent to further exchange rate depreciation and that for the immediate future, curbing such depreciation will be a priority of the Bank of Uganda’s macroeconomic management,” Mutebile said.
But even he offered a caveat: “Open market exchange rates are difficult to control and no central bank can guarantee to move the exchange rate in the direction it wants.”
Experts warn that BoU will have a tough time reigning in inflationary pressures in a food-starved economy.
“It’s hard to control inflation that is induced by food shortages because [short of supplying food] there’s little there that the central bank can do,” Malaki said.
Weather forecasts from the meteorological department suggest rains will be scarce this year, signaling that food supply will not improve in the short term, and prices will remain high.
With food accounting for the biggest weight in the Consumer Price Index – the basket of items used to calculate inflation – policy makers have little room to wriggle.
Still, there could be a relief valve for BoU.
Some analysts argue that a significant amount of inflationary pressure stemmed from the currency flood that washed through the economy as election spending got underway around October last year.
BoU admits this and is already mopping up this excessive cash through raising interest rates on government securities.
A February report by Renaissance Capital, an investment advisory firm, says higher rates on government securities could help BoU kill two birds with one stone.
“Portfolio inflows searching for higher yields, as the central banks raises interest rates to control inflation, could help temporarily stabilize the foreign exchange market,” says the report. “The specter of inflation and asset bubbles should however be watched as a result, leaving short term uncertainty a challenge for monetary policy.”
Economists say that with a peaceful election behind, overseas investor sentiment is positive and as they start implementing planned investments, dollar inflows could surge, stabilizing the exchange rate and cooling the prices of imported goods.
“On average the shilling has been stabilizing in recent days and that’s a strong indication of increased inflows,” says Mona Muguma, an analyst at African Alliance
“Prior to the elections a lot of offshore investors took flight because of nervousness about what was likely to follow the polls,” he said. “That is changing and there are signs a number of them are coming back.”
Over the past week some rain has been seen in parts of Uganda, including western Uganda- -now the country’s food basket. If the harvest of staples like bananas and corn performs slightly better than the worst-case scenarios, an uptick in supply could get the prices – and inflation – leveling off around June.
For investors in the short term, a rise in inflation should favor equity as compared to longer-term fixed income instruments, according to Renaissance.
On the whole, however, if BoU’s measures and God’s rain fail to slow the soaring headline inflation, the broader economy will suffer. Companies will see their costs balloon uncontrollably, potentially crimping profit margins and undercutting capacity for new investment.
That could hamstring GDP growth, especially in an economy that is still riding a fragile recovery from the depths of the 2008/09 global recession.
Soaring inflation will also cut consumer spending, potentially reducing government revenue and cutting off funding for essential public services.
Original date published: 18 March 2011
Source: http://allafrica.com/stories/201103211431.html?viewall=1