By Patrick Kiconco Katabaazi
The announcement of several restrictions in March 2020, to curb the spread of COVID-19, has left the economy in a considerable slow down as indicated by the reduction in both annual and core inflation.
Whereas the price is, among others, determined by quantity, other factors like number of buyers and income level are critical too.
In the case of the current restrictions, the income levels have been constrained but also buyer movements to the market have been curtailed. This means that the change in price will be negative and constant at best. All this is not good for business as cash flows begin to get strained.
The Annual Headline Inflation for the year ending March 2020 is recorded at 3.0% compared to the 3.4% recorded for the year ended February 2020. The decrease in Annual Headline inflation is largely attributed to the Annual Core Inflation that is registered at 2.5% for the year ending March 2020 compared to the 3.1 percent registered for the year ended February 2020 (UBOS, 2020).
The demand for clothing and footwear, services and transport have all declined in March as indicated by the reduced inflation.
Even the annual inflation for fuel and utilities in March 2020 re- duced to 7.7% from 8% in February 2020. However, with all this reduced inflation, the price for food crops and related items increased by 1.2% from 1.3% in February 2020 to 2.5% in March 2020.
One of the highest risks, after the COVID-19, is shaping out to be the affordability of food to a population which has been disrupted to curtail the spread of the virus.
This has left behind increased vulnerability to poverty. The next poverty numbers will definitely be above 21.4%.
Impact of COVID-19 on other sectors
As noted in the Recreation and Culture category, the Newspapers, Books & Stationery Inflation decreased to 1.7% for the year ending March 2020 compared to 2.8% recorded for the year ended February 2020.
In March, this collaborated by the shut-down of the Observer news paper and some brands of New Vision. Whereas these can be interpreted as COVID 19 coping mechanisms, we are yet to see if these News Papers outlets will get back on the market.
With the closure of schools, the annual Inflation for Education re- duced to 5.3% rise for the year ending March 2020 compared to 7.0% for the year ended February 2020.
This was due to Pre-Primary and Primary Education inflation which decreased to 4.6% for the year ending March 2020 compared to 5.6% recorded for the year ended February 2020. The related value chain to education service provision is also negatively impacted with various suppliers getting stuck with stock of items they cannot supply to the now closed schools.
In the interim, we expect the economy to continue cooling down as we adjust to lifestyles and business models that minimise human contact and crowding.
This, as projected earlier, is going to further reduce the growth projections of Uganda in the FY 2019/20; a financial year that is already scarred by persistent be- low target revenue collections.
Due to the food price risks looming, the idea to have social protection as a constant annex to social distancing should now be a way of life and a critical basis for the next policy direction.
The author is the Executive Director at The Centre for Budget and Tax Policy (CBTP), an independent think-tank and centre of excellence in Africa on budget and tax policy.
