Bank of Uganda Governor Clarifies: Lower Inflation Rate Doesn’t Mean Lower Prices

 Governor Michael Atingi-Ego of the Bank of Uganda last week clarified the nuanced concept of disinflation, emphasising that a decline in the inflation rate does not equate to a fall in price levels. His remarks came during the reading of the Monetary Policy Statement for the month of May, aiming to demystify public understanding of economic indicators.

“It does not mean to say that prices are coming down,” Governor Atingi-Ego stated. “Inflation is the rate at which prices change. So it means that the rate at which prices change, or the rate at which prices are increasing, is coming down, but the price level is not coming down.”

He offered a tangible example using the staple food, matoke. “If in June last year, you bought a bunch of matoke at 20,000, and then you go in July, you bought it at 25,000, and then you go in August, it is maybe 23,000,” he explained. The inflation of matoke between June and July is higher than the inflation of matoke between August and July. It doesn’t mean that the price has come down. It is the rate at which the price is coming down that is decreasing.”

The Governor also shed light on the composite nature of inflation figures. He highlighted that headline and core inflation rates are averages derived from a broad “basket of goods and services.”

“Inflation is a composite index. It is an average of a long list of baskets of goods and services,” Atingi-Ego noted. He acknowledged that individual experiences with price changes might differ significantly from the reported averages. “You might find that some prices are rising faster than the others, others are falling faster than the [average],” he said.

This divergence can lead to public scepticism, Atingi-Ego conceded. “Depending on your particular price that you are looking at, or a commodity that you are looking at, you might find that [the] boss has said, headline inflation is 3.5 [percent], core is 3.9 [percent], but when you go for that particular good, it might be that good whose price has risen far higher than the average inflation.”

He, however, underscored the purpose of these broad economic indicators: “Now the question is, are you going to say, no, these numbers are not true? Where is the average here? So just to give you an indication of where prices are on average.”