Macroeconomic Variables Affecting Prices of Goods and Services in Uganda

Abstract

This study investigated the macroeconomic factors determining and influencing the prices of goods and services in Uganda for the period 1993-2019. The data set of annual observations spanning from 2005 to 2019 were obtained from the Bank of Uganda Website, this data is updated and released by BOU every year before the reading of the National Budget in July. First, the study checked the stationarity of our variables using unit root tests using the ADF test, Shapiro Wilks test for normality, OLS to examine the relationships between various macroeconomic variables in relation to consumer price indices. After taking care of the possible autocorrelation in the error term, the series for consumer price indices turned stationary. The data for consumer price indices followed a mesokurtic distribution, the principal components revealed a strong cohesion in all variables. The regression results found out that an increase in the variables such as money supply, lending rate, total exports and rediscount rate increase prices of goods and services while higher imports volume and exchange rates reduce consumer prices. Exports volume has been observed to reveal a positive and significant correlation with the consumer prices, in other words, the higher the exports relative to the imports the higher the consumer prices abroad for the exports, therefore concerted efforts by the Uganda Revenue Authority together with government need to work hand in hand to provide export subsidies and reduce import quotas to allow Ugandan to trade freely with the rest of the world in a bid to offset in times of surplus and acquire in times of scarcity.