The 2011 inflation spike and the shift to inflation targeting

Uganda's inflation chart spikes sharply in 2011, when a combination of drought-driven food prices, a global fuel-price surge, election-related government spending ahead of the February 2011 vote, and a depreciating shilling pushed annual headline inflation up to around 30% by October, the highest level in nearly two decades. The Bank of Uganda responded by abandoning its previous monetary-targeting framework in July 2011 in favor of an inflation-targeting-lite regime built around a central bank rate, which it then raised aggressively, to roughly 23% by late 2011, to pull inflation expectations back down. Addressing Bank of Uganda staff at the end of 2011, Governor Emmanuel Tumusiime-Mutebile described fostering price stability and a sound financial system as the central bank's core task for the year ahead, pointing to the shift in framework as a deliberate response to a spike he attributed to both external shocks and excess demand in the economy. The tightening proved effective: inflation fell back into single digits by mid-2012, and the episode marked the point at which the Bank of Uganda's modern, more actively managed monetary-policy framework took shape, replacing a looser approach that had let the 2011 shock build up largely unchecked.