Responding to imported inflation in Uganda: Distributional impacts and policy options

  • Inflation is ravaging the world, driven by a combination of post-pandemic supply chain disruptions, a rebound in global demand, and the war in Ukraine.
  • The first round-effects of the global inflation surge in Uganda have occurred via jumps in the prices of seven principal commodities, delivering particularly adverse hits to the incomes of the poor.
  • As a small open economy, Uganda can best adapt by maintaining a sound and flexible macroeconomic framework and generally allowing price adjustments to run their course.
  • Although fiscal headroom is highly constrained as Uganda emerges from the COVID-19 related economic downturn, there may be scope for policymakers to undertake a few selective interventions to assuage the impact of inflation on low-income groups. These include pro-poor tariff reductions, eliminating the excise duty on cooking oil and targeted cash transfers.