The impact of food and energy price shocks on cost of living for rural and urban households in Uganda
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This paper examined the impact of food and energy price shocks on the cost of living for rural and urban households in Uganda using the SAM-multiplier approach to test the hypothesis that an increase in either food or energy prices leads to an increase in the cost of living for the three types of households i.e. rural and urban households in Uganda. Rural households are disaggregated into two categories of the rural farm for households with crop and/or livestock incomes and rural non-farm for households without crop and/or livestock incomes while Urban households refer to households with or without crop and/or livestock incomes. The study used secondary data of the 2013 social accounting matrix for Uganda collected by the International Food Policy Institute (IFPRI). The results revealed that an increase in food or energy prices have adverse impacts on the cost of living of both rural and urban households in Uganda. Specifically, a 10 percent increase in food prices increases the cost of living by 2.36 percent with the largest proportion of this effect coming from the indirect effects that account for 56.4 percent of the total effect. Though the effect on the different households takes the same direction, it varies with the 10 percent increase in food prices causing the cost of living of rural farm, rural non-farm, and urban households to increase by 2.76, 2.42, and 1.89 percent, respectively. On the other hand, a 10 percent increase in oil prices increases the cost of living by 42.8 percent with indirect effects accounting for 57.2 percent of the total effect. Specifically, a 10 percent increase causes the cost of living of rural farm, rural non-farm, and urban households to increase by 41.65, 43.69, and 43.08 percent, respectively. The impact on the cost of living was larger for the oil prices probably because oil is used as an input for most of the activities in the economy and has limited substitutes compared to the cereals. Therefore, any volatility in oil prices will automatically affect the costs of production that in turn lead to an increase in the cost of living. Further, the producer price index measured as average movements of prices received by the producers of various commodities increased by 2.26 percent following a 10 percent increase in the price of cereals with the direct effect accounting for 21.28 percent of the total effect while the indirect effect accounts for 78.72 percent. For a 10 percent energy price increase, the producer price index increases by 56.09 percent where 42.41 percent of this increase results from the direct effects of the price of the energy price increase while the remaining 57.59 percent results from the indirect effects. Based on the above findings, the government of Uganda should adopt policies like supporting initiatives aimed at providing alternative energy sources, developing a fuel pricing policy, increase investment in activities that reduce the cost of production, and designing policies towards improving both rural and urban households purchasing power.