Rising prices, widening trade deficit put pressure on the economy

Kampala, Uganda | URN | Uganda’s cost of living rose in September as food prices, transport fares and energy costs increased, while a weakening shilling and a widening trade deficit added to the economic pressures facing the country.

This increase reflects a general rise in prices across the various baskets of goods and services on account of unfavourable weather conditions which affected the supply of food crops.

This was exacerbated by the increased cost of production caused by higher transport and energy costs amidst a continued rise in international oil prices.

In a special monetary policy committee meeting held in October 2026, Bank of Uganda raised the Central Bank Rate from 9.75 percent to 12.0 percent.

This was intended to contain inflationary pressures, limit second-round effects from higher energy prices and exchange rate depreciation, and anchor inflation expectations around the medium-term target.

The Ministry of Finance, Planning and Economic Development’s Performance of the Economy Monthly Report for September 2026 shows that annual headline inflation rose to 4.6 percent from 4.1 percent in August, driven partly by unfavourable weather that affected food crop supplies and higher production costs associated with rising transport and energy prices.

Food crops and related items recorded one of the sharpest increases, with annual inflation rising to 4.5 percent from 2.1 percent in August.

Inflation for energy, fuel and utilities also increased to 14.5 percent from 14.3 percent. The report indicates that the rising costs extended beyond food and fuel.

Annual core inflation, which excludes some volatile price changes, increased to 3.7 percent from 3.5 percent.

Prices of processed foods, including maize flour, bread, cassava flour and some types of rice, rose during the month. Transport costs also continued to increase.

Taxi fares for short, medium and long distances, together with long-distance bus fares, rose by an average of 14.9 percent in September compared with 14.2 percent in August.

The pressure on domestic prices comes amid a weakening shilling and a growing gap between Uganda’s merchandise exports and imports, developments that could expose the economy to further external shocks.

The shilling depreciated by 3.7 percent against the US dollar in September, trading at an average midrate of 3,868.87 shillings per dollar, compared with 3,730.25 shillings in August.

The Ministry attributes the depreciation to higher global oil prices, rising United States Treasury yields and a stronger dollar, compounded by seasonal demand for foreign currency and speculation in the local market.

A weaker shilling makes imported goods and inputs more expensive in local currency, potentially adding to the cost of production and transport. The report’s inflation figures show that the exchange-rate pressure was already contributing to price increases for items such as vehicles, spare parts and car batteries.

Uganda’s merchandise trade deficit also widened sharply in August, as the value of imports grew faster than export receipts. Export receipts increased by 40.6 percent year-on-year to 1.49 billion US dollars in August 2026, up from 1.06 billion dollars in August 2025.

However, imports rose by 66.5 percent to 2.31 billion dollars from 1.39 billion dollars over the same period. As a result, the merchandise trade deficit widened to 817.03 million dollars in August, compared with 325.53 million dollars a year earlier.

The report also records a substantial month-on-month increase from 224.78 million dollars in July.

The figures show that stronger export earnings have not kept pace with the growth in import expenditure.

Gold accounted for about 889 million dollars, or roughly 60 percent, of total export receipts in August, highlighting the importance of gold to Uganda’s export performance during the period.

The combination of a weaker shilling, higher energy costs and a wider trade deficit presents risks for inflation and the country’s external position.

In response to inflationary pressures and exchange-rate depreciation, the Bank of Uganda raised the Central Bank Rate from 9.75 percent to 12 percent at a special monetary policy meeting on October 14.

The increase was intended to contain inflation, limit the effects of higher energy prices and currency depreciation on other prices, and keep inflation expectations anchored around the medium-term target.

Despite these pressures, the Ministry’s indicators point to continued economic activity and improving business conditions, although the pace of expansion and business optimism moderated in September.

The Purchasing Managers’ Index fell to 53.0 in September from 55.0 in August. A reading above 50 indicates improving private-sector business conditions. Firms continued to record increases in output and new orders, supported by customer demand, but higher energy, transport and production costs weighed on the pace of improvement.

The Business Tendency Index also remained above the 50-point threshold associated with optimism, although it declined to 55.80 from 57.69 in August.

The Composite Index of Economic Activity rose by 0.3 percent to 193.87 in August from 193.30 in July, indicating an increase in economic activity over the previous month.

The indicators suggest that businesses were still expanding and economic activity was growing, even as inflation, currency depreciation and rising import costs created additional pressure.

The report therefore presents an economy that continues to grow but faces mounting cost pressures.

Whether the positive business momentum can be sustained will depend partly on how inflation, exchange-rate movements and the widening trade gap evolve in the coming months.