Skyrocketing Commodity Prices; Gov’t must find quick remedies to prevent worse outcomes
Since January 2022, there has been an abnormal increase in commodity across the world.
For instance, in the United Kingdom, inflation was reported at 5.5% in February, a record rate since May 1992. In Uganda, most of the commodity prices increased, but most notably the prices of laundry bar soap, sugar, cooking oil and fuel, among others.
A recent Consumer Price Index (CPI) report by the Uganda Bureau of Statistics (UBOS) indicates that cooking oil prices have exponentially increased by 21% since December 2021.
The price of bar soap has increased by 20%. The increase in prices is negatively impacting the most people although the poor are bearing the brunt of the sudden scarcity.
Salary earners have also been greatly affected since salaries/wages rarely factor in inflation and remain oblivious to the realities of the economy.
Why are commodity prices rising at a fast rate?
The recent Covid-19 pandemic and its preventive measures, including lockdowns, are reported to have affected the raw materials supply chain, leading to a rise in their prices and hence increased cost of production.
The measures that were adopted to control the spread of Covid-19 like restructuring of staff in some companies reduced the levels of supply compared to the high demand.
This was further amplified by the full re-opening of the economy, igniting higher aggregate demand. In basic economics, under a free market economy, whenever the demand exceeds supply, prices are expected to increase, with other factors being held constant.
External factors, including the Russian-Ukraine war that disrupted the supply of many products on the global market like oil, cereals and many others, are also a key concern. It should be noted that Uganda is running an open economy with liberalised external trade.
The foreign trade policy facilitates exports, including foodstuffs, to neighbouring countries, which partly creates scarcity at home.
How can we curb the increase in prices of commodities?
Although some of the attributable factors are external to Uganda’s economy, the government cannot turn a deaf ear to the current unfriendly prices.
It is well-known that the major mandate of the Bank of Uganda (Uganda’s central bank) is to maintain price stability and ensure a sound macro economic environment.
Adopting a restrictive monetary policy would save the country from the current situation.
Since the increase in prices is largely attributed to the rising cost of production arising from high fuel prices, the government needs to prioritise stocking of fuel in reserves to be used in times of scarcity.
If this were done, the upcoming elections in Kenya – one of the major Ugandan oil routes – would not be a cause of worry.
Revision of the consumption and expenditure patterns of the households is important, given these tough times. Essential commodities should be prioritised. Government should thus undertake a massive awareness campaign to encourage the public to maintain financial discipline in this period.
Uganda’s long-awaited oil production should be expedited to reduce dependence on imported petroleum and petroleum products. This can be prioritised to prevent inflation arising from increased cost of production.
The Ministry of Agriculture, Animal Industry and Fisheries, in consultation with the Ministry of Finance, Planning and Economic Development, should sensitise the public on the importance of undertaking commercial agriculture.
Since agriculture is the major economic activity in Uganda, this can boost farmers’ potential to afford any increase in prices and reduce their sensitivity to unfavourable commodity price changes. Also, investment in commercial agriculture would reduce the country’s over-reliance on imported raw materials for production.
In conclusion, the failure to address the current skyrocketing commodity prices in Uganda may result in reduced business profitability, the collapse of businesses, increased poverty levels and a reduced standard of living.
Bachelor of Commerce Student, Makerere University