Uganda's annual inflation rate for the year ended July 2013 increased to 5.1% from a revised figure of 3.6% a month earlier, the Uganda Bureau of Statistics (Ubos) announced on July 31 in Kampala, the capital city.

The Bureau said core inflation rate went up to 6.4% from a revised 5.8% in June.

The rise was attributed to an increase in food prices after a dry spell hurt supplies. The overall monthly food inflation rate registered an increase of 0.4% in July after a fall of 2.6% a month earlier.

Bank of Uganda will on Aug. 5 respond to the rise in inflation rate by announcing the Central Bank Rate (CBR) currently standing at 11%.

The CBR, which is set by BoU monthly, is a signal rate that directs commercial banks to adjust their lending rates in line with the prevailing economic conditions.

The rate went up to 23% at the end of 2011 after year-on-year inflation jumped to over 30%, but the rate (CBR) has been reduced to current levels in line with the decline in inflation.

The Central Bank Governor Emmanuel T. Mutebile has since urged commercial banks to cut their lending rates to boost credit demand and economic growth.

Stephen Kaboyo, the managing director at Alpha Capital Partners said the rising inflation rate reduces the Central Bank's room to cut rates below the 11% level.

"We are likely to see BOU refining their policy guidance with a sense of caution," Kaboyo said.