Using 2002/03 and 2005/2006 nationally representative household surveys, poverty headcount index declined from 38.8% respectively. The corresponding poverty gap ratio declined from 11.9% to 8.7%. While all Ugandans enjoyed an increase in consumption between the sample periods, the rate of growth in consumption was slightly higher for the lower percentiles. The led to a significant improvement in the distribution of income as demonstrated by the decline in the Gini coefficient from 0.428 to 0.408. The urban areas continue to have higher rates of inequality, nonetheless, they witnessed a significant improvement. the Gini coefficient declined from 0.483 in 2002/03 to 0.432 in 2005/06. Overall, the improvement in the distribution of income had a positive impact on poverty reduction. The poverty headcount in 2005/06 would have been higher by 1.2 percentage points if distribution of income had remained constant at the 2002/03 level. Using static decomposition techniques to examine the pattern of inequality in real consumption between regions and educational attachment of the household head increased over the sample periods. but inequality declined between rural/urban subgroups.