The change in the overall prices of goods and services remained below Bank of Uganda’s projected forecast, according to the Monetary Policy statement released for the month of May 2025.
As a result, Bank of Uganda maintained its key monetary rate at 9.75 per cent as it took a cautious outlook of heightened global risks.
“Over the past year, annual headline inflation averaged 3.4 per cent while core inflation averaged 3.9 per cent, remaining below the medium-term target of 5 per cent. This subdued inflation has been supported by prudent monetary policy, a stable exchange rate, global disinflation, and favorable food and energy prices,” Bank of Uganda noted in its monetary policy statement.
The statement notes that inflation outlook remains broadly aligned with the February 2025 forecast, with slightly lower projections in the near term due to a more stable exchange rate and declining global oil prices.
Core inflation – the change in the prices of goods and services minus food, energy and utilities – is expected to average between 4.5 per cent and 5 per cent in FY2025/26 and to converge toward the 5 per cent target over the medium term.
The statement noted that in the month of April 2025, core inflation edged up to 3.5 per cent and 3.9 per cent from 3.4 per cent and 3.6 per cent, on the month of March 2025 with increases primarily driven by higher prices for services and other goods.
The statement highlighted that issues such as escalation of geo- political tensions and new trade restrictions will disrupt global supply chains, thus leading to a more depreciated exchange rate.
The report also highlighted that factors such as adverse weather conditions could potentially reduce agricultural output and lead to an increase in food prices. Looking at the downside inflationary risks, the monetary statement notes that the appreciation of the exchange rate, which is supported by stronger capital inflows stemming from the oil sector, improved agricultural output, due to favourable weather conditions.
This boosted food supply, declining global commodity prices, especially crude oil, due to weaker demand. This may lead to a reduction in domestic energy and transport costs and slow global economic growth thereby reducing external inflationary pressures.
