The Governor Bank of Uganda, Emmanuel Tumusiime Mutebile has predicted that the high inflation will come down to the target of five percent per annum before the year ends.
Announcing the January 2012 monthly monetary statement in Kampala on Tuesday, Mutebile said inflation has peaked, adding that he expects a sharper decline to reach the medium term target of five percent before December, much earlier than predicted.
Mutebile said there are clear signs that inflation has peaked although the prices for goods and services have not changed much.
Headline inflation, which is the sum total of all inflation is at 27 percent, down from 29 percent while core inflation, a measure of selected volatile items like food and fuel, is now at 29 percent, down from 31 percent last month.
Annual food inflation has also declined from 40 percent to 34.7 percent.
Mutebile said the continuous decline in food inflation since October 2011 is an indication that the impact supply-side-shocks to food prices is declining.
The Governor revealed that global inflation is also forecast to fall during 2012 because of the possibility of a sharp economic deterioration in developed countries that will result in the decline of commodity prices.
Mutebile said the declining inflation and the recent strengthening of the shilling means the new monetary policy of targeting inflation is effective.
As a result, he maintained the Central Bank Rate (CBR), the rate at which it lends to commercial banks, at 23 percent for the month of January 2012.
This means commercial banks will continue to lend to their clients at nearly 30 percent.
Mutebile noted that although the central bank is keen in controlling inflation in the short and medium term, the long term solution to controlling inflation rests on addressing structural constraints and improving productivity.
Meanwhile the Governor announced remittances by Ugandans living abroad amounted to 760 million dollars, slightly lower than the 2010 figure of 770 million dollars.
