East African: Rising inflation takes its toll on region’s economies……

East African economies are experiencing rising inflation as their currencies continue to weaken against the dollar according to the East African.

The Bank of Uganda has raised its benchmark lending rate for the first time since June 2014, in a bid to slow the increase in inflation. BoU Governor Emmanuel Tumusiime-Mutebile said that the depreciation of the shilling and faster real GDP growth will lead to an increase in inflation over the medium term. Uganda has raised the base lending rate to 12% from 11%, as its core inflation rose to 3.7% from 3.3% between February and March: BoU’s outlook is 5% by mid-2015. Ben Mungyereza, the executive director of the Uganda Bureau of Statistics attributed the rise in inflation to the effect of the shilling’s depreciation on the prices of imported goods. “The annual headline inflation also rose in March to 1.9% from 1.6% in February 2015. The low rates of headline inflation are mainly attributable to the negative food crop inflation, which is a result of a good harvest in 2014/15 season,” Mr. Mungyereza said.

In Kenya, the overall inflation rate rose to 6.31% in March from 5.61% the previous month, a new high this year. James Gatungu, the director of production statistics at the Kenya National Bureau of Statistics (KNBS), said the inflation rate for Nairobi’s lower income earners reached 6.32% in March; this class of Nairobi residents was the hardest hit by Inflation. The rise in prices was mainly as a result of the dry weather conditions experienced during the period,” said Mr. Gatungu. Between February and March 2015, the food and non-alcoholic drinks index increased by 2.65%. The rise was mainly attributed to increases in the cost of vegetables, milk and other food products.

The Kenya Food Security Outlook report for March, compiled by the World Food Programme, Famine Early Warning System Network and the Ministry of Agriculture, shows that food security declined between January and March 2015. “Many households currently have no food stocks. As a result, households need to purchase all their food from markets at a time of seasonally low household incomes,” the report said.

An increase in staple food prices resulted in a slight increase in annual headline inflation in Tanzania in March 2015, despite the country enjoying a bumper harvest in the 2014/15 season. Ephraim Kwesigabo, the director of Population Census and Social Statistics at the Tanzania National Bureau of Statistics, said the increased food prices pushed up the annual headline inflation rate to 4.3% in March, from 4.2% in February.

In Rwanda, the increasing cost of power, food and transport pushed up the inflation index by 0.8% year on year in March, higher than 0.7% recorded in February. Rwanda National Bank attributed the rise to the increase in year on year inflation on food, housing, water, electricity, gas and other fuels. “The increase was driven by a 3.8 % rise in prices of housing, water, electricity, gas and other fuels, 0.8% increase in food and non-alcoholic beverages, and a 3.9% increase in transport costs,” BNR said in a statement. Burundi, said its February rates fell sharply by 1.2% from 3.5% due to lower costs for housing, water and electricity. According to Burundi’s Institute of Economic Studies and Statistics, lower international fuel and food import prices saw the average inflation rate drop to 4.4% in 2014, from 7.9% in 2013. The rise in the inflation rates in East African countries is a point of concern particularly due to its potential effect of slowing consumer demand for various goods and products and thus ultimately curtailing economic growth. One key risk to the inflation outlook for African countries is the impact of tapering on US dollar strength vs. African currencies, and its spill on effects on to economies which are heavily reliant on imports. As a result we continue to monitor developments with a keen interest.