Uganda: Telecom Sector Dictating Inflation Trends, Says Ubos

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The pattern of consumption in Uganda is increasingly being dictated by mobile phone usage, shifting emphasis away from food. As a result, the consumer price index was restructured to accommodate communication as a separate basket. A market basket is a collection of goods and services. Communication was previously part of the transport and communication basket. Food weighs 28% in the consumer price index. Communication, which hardly existed in the index a decade a go, weighs 6%.

Communication comprises mobile phone air time, fixed line telephones and Internet services. Other components of the consumer price index include housing, water and electricity, clothing and foot wear, recreation and culture. Others are restaurants and hotels, health, furnishing and household equipment, alcohol beverages, tobacco, education, narcotics and miscellaneous goods and services.

David Katende,who runs a small business in Kampala, says several years ago, he was not spending on airtime. "Now I have two mobile phones. One for Warid and the other for MTN. I spend between sh5,000 to sh10,00 on airtime daily. However, I plan for all the money I use to buy airtime, but on a busy day when I have to make a lot of calls, I spend about sh25,000," he explains. Katende says he ensures that all his phones have airtime in case of an emergency.

The reduction in mobile phone call charges last October caused a major fall in inflation rates. The effect of this reduction will keep inflation low for the whole of 2011 even if there are pressures pushing it up, the Uganda Bureau of Statistics (UBOS) officials have predicted. In October, there was a 46% reduction in call charges because of the stiff and growing competition among the telecom firms. "During that month, we discovered that the consumer price index fell by 0.3% and, hence reducing the October inflation rate.This resulted in the annual inflation rate falling by 0.1%," Ronald Ssombwe, a senior statistician UBOS told Business Vision.

In 2009, the annual average headline inflation rate stood at 13%, but fell to 4% in 2010. Ssombwe said mobile phone call charges contributed about nine percentage points to the reduction of the inflation rate between 2009 and 2010.

Twelve months ago, the industry average mobile call rate was sh11 per second, which fell to sh5 and then to sh3 per second. Orange, Airtel and Warid have promised to keep their rates at three shillings per second. Warid is offering sh1 per second from 6:00am to 6:00pm.

For the short message service (SMS), Airtel is offering unlimited short messages to its subscribers for sh200 per day and sh50 to other networks.

Ssombwe says the impact of the telecommunications sector can no longer be underrated in the consumer price index.

"There was excitement among various stakeholders, especially the customers, but airtime sellers were not happy with the result of the competition," he explains.

He, however, revealed that last November inflation had started rising. "Although it went up, it was supressed by the fall in call charges," Ssobwe says.

He adds that this effect would take a year to phase out, and that inflation was rising at a declining rate. There will be a one-year effect on inflation because of this drop in call charges. There have been questions whether the effect of the one-month drop of charges has had any effect on the economy.

"The new innovations in the telecom sector, like giving customers airtime on credit, may drive the call charges even lower. "If we get more competitors in the sector, it will also drive the charges lower. It will have a direct impact in reducing the total inflation rate."