While inflation is on the rise, your disposable income is shrinking.
If your income stays flat while the prices around you are doing the high jump, your real purchasing power drops.
Across Uganda’s markets, traders are reporting a similar trend of fewer customers, slower sales, and increasing difficulty moving stock.
Halimah Nabukenya, who sells ladies’ cosmetics says: ‘Previously, we could get about 30 walk-in customers a day, but now we get around five. I don’t know what explains the dramatic change, but people are not buying.’
At Nakasero Market, Richard Mukiibi, chairman of the fresh food traders, tells a similar story: ‘Because of high prices, we are getting fewer customers. Now we sell around 10 sacks compared to about 20 during the rainy season.’
The strange part is that this is happening in an economy projected to grow by more than 6 percent this year.
The Finance Ministry’s June 2026 Microeconomic Indicators and Developments (MIND) report shows that household spending reduced by 14 percent in quarter three of the financial year 2025/26.
Retail sales tracked via the Electronic Fiscal Receipting and Invoicing Solution (EFRIS) invoicing system dropped by 25 percent, and new business registrations dropped by 39 percent in a single month, from 2,749 in May to 1,675 in June.
But the low purchasing power turns out to have several distinct, compounding parts.
Seasonal supply shocks
Some of what traders are feeling is genuinely cyclical. Mr Mukiibi’s produce prices have spiked because the dry season has choked supply.
A sack of broccoli has risen from between Shs80,000 and Shs100,000 to Shs350,000, while cucumbers have risen from Shs50,000 to Shs80,000 a sack.
Research fellow at the Economic Policy Research Centre, Madina Guloba, frames this as a normal pattern: ‘Consumption patterns in Uganda often fluctuate with the seasons, leading to slower market activity during certain periods.’
She explains that during harvest periods, households rely more on home-produced food, reducing market purchases and creating the impression of weakened demand even when incomes remain stable.
But a harvest cycle does not explain a 39 percent collapse in new business registrations or a 25 percent drop in retail sales in the same month. Those numbers point past seasonality toward something structural.
Inflation is outrunning income
The explanation economists keep returning to is the gap between nominal income – money earned – and real income – what that money can buy.
Fred Muhumuza, a development economist, demonstrates that: ‘If I had Shs10,000 and fuel is Shs5,000 per litre… my real income is equivalent to 2 litres.’
As prices rise, the same shillings buy less: ‘If you divide by Shs6,500, you have less than 2 litres.’
His explanation is: ‘Your real income has reduced, but the prices went up.’
The MIND dashboard gives those hard numbers.
Liquid energy fuel inflation stood at 8.9 percent in June 2026. Diesel prices climbed from a 10.6 percent increase in May to 13.2 percent in June.
Energy, Fuels and Utilities inflation overall rose to 3.4 percent, and the domestic power tariff increased again, from Shs756.2 to Shs779.4 per unit for the July to September quarter.
Food inflation, by contrast, was flat at 0 percent in June, down from 0.6 percent in May, which looks like a relief on paper.
In practice, fuel is embedded in the price of transporting nearly everything from farm to stall.
Dr Muhumuza notes that even as global oil prices ease, domestic pump prices stay high because current stock was imported at the old, elevated rate, so relief arrives late.
Against an average monthly net salary of Shs628,611, this is the difference between a household covering transport, electricity and food, or cutting one of the three, usually the discretionary purchase of cosmetics or clothing trader was hoping to sell.
Households protecting essentials
This is Engel’s Law, an economic theory that holds that as real incomes tighten, households don’t cut spending evenly.
They protect food, rent, transport and school fees first, and cut discretionary categories like cosmetics, clothing, electronics, hardest.
The Uganda Bureau of Statistics (UBOS) data shows food already consumes more than 44 percent of average household expenditure.
When fuel and utility costs rise on top of that, whatever is left for non-essentials shrinks fast, and it shrinks in exactly the shops now reporting the steepest customer drop-off.
Tightened government liquidity
Dr Julius Byaruhanga, director of policy and advocacy at Private Sector Foundation Uganda (PSFU), points to a liquidity dimension the MIND data corroborates.
‘Government spending has not put much money into circulation,’ he says.
Government procurement accounts for an estimated 60 to 65 percent of the national budget, and its pace determines how much cash actually reaches contractors, suppliers, and eventually market stalls through wages and spending.
Every June, government accounting systems pause payments for year-end closure through the Integrated Financial Management System, a routine freeze that nonetheless drains liquidity just as fuel costs are spiking.
The MIND dashboard shows Public Investment Plan (PIP) budget absorption at 83.3 percent.
This dropped by 8.5 percent year-on-year, meaning even the money government plans to spend is moving more slowly through the economy than before.
Together, in the same quarter, they explain why Uganda can grow by 6 percent on paper while a cosmetics trader in Kampala counts five customers where she used to count thirty.
An uneven squeeze
Uganda’s poverty numbers are improving. The national poverty rate has fallen from 21.4 percent in 2016/17 to 16.1 percent in 2023/24, data from the Finance Ministry shows.
But averages flatten a country that is anything but uniform. Urban poverty sits at 10.3 percent against 19.4 percent in rural areas, and Karamoja’s 74.2 percent poverty rate belongs to an entirely different economy than Kampala’s 1.1 percent.
The Multi-Dimensional Poverty Index, which captures deprivation beyond income alone, actually rose 17 percent nationally between 2022 and 2024, even while the income-poverty rate was falling.
Two credible measures of the same country, moving in opposite directions, paint a picture of growth that is real but unevenly distributed, where a ‘shrinking purchasing power’ story and a ‘falling poverty rate’ story can both be statistically true at once.
Weaker exports
The squeeze isn’t only domestic. Uganda’s monthly trade deficit widened 7 percent between April and May 2026, to $115.69 million, as export receipts from both gold and coffee fell.
Weaker export earnings mean less foreign currency entering the economy, one more force, over time, pushing up the cost of the imported fuel that everything else depends on.
The feedback loop
Dr Muhumuza explains that the economy survives on demand.
‘If somebody used to get 20 customers and now gets seven or 13, it means demand has gone down,’ Dr Muhumuza says.
When households cut spending, businesses, and small and medium enterprises make up over 90 percent of all businesses in Uganda, cut production, delay expansion, and in some cases lay off workers.
Fewer jobs mean less household income, which further weakens demand. The 39 percent one-month drop in new business registrations looks more like an early sign of that loop taking hold.
Government’s response, like the Parish Development Model with about 3.7 million cumulative beneficiaries, Emyooga’s 7,148 SACCOs, the Social Assistance Grants for Empowerment (SAGE) cash transfers now reaching 489,673 older persons, expanded Universal Primary Education (UPE) and Universal Secondary Education (USE) capitation grants, is genuine, structural, and part of why the long-run poverty rate keeps falling.
But none of it was designed to offset a fuel-price spike hitting household budgets this month, or a June liquidity freeze draining cash from the market this quarter.
So, what explains it?
Not one cause, but six that arrive together.
This reflects the convergence of several pressures: a seasonal supply shock, a genuine erosion of household purchasing power, consumers retreating to essential spending, a poorly timed pause in government liquidity, the uneven distribution of the benefits of economic growth, and export earnings that remain too weak to offset pressure on the exchange rate.
Individually, each is manageable.
Together, in the same quarter, they explain why Uganda can grow by 6 percent on paper while a cosmetics trader in Kampala counts five customers where she used to count thirty.