by Elorm Desewu
The Bank of Ghana, (BoG), is likely to continue tightening the policy rate although inflation is expected to decline in the near term.
According to the central bank, the baseline forecasts show a slightly higher elevated profile in the year ahead, which, if not contained, could embed in underlying inflationary pressures. It is important that policy responds appropriately and decisively to prevent these risks from becoming embedded and consequently derailing the disinflation process.
The Bank of Ghana has disclosed that year on year inflation would settle at 29+/-3 percent and further decline to 19+/-2 by the end of 2024.
The risks to the inflation profile were judged to be elevated as at July 2023, driven by second-round effects of food prices. Inflation has persistently hovered around 42 percent throughout the second quarter of 2023, even though central bank financing has been eliminated in the first six months of the year.
These developments require decisive fiscal and monetary tightening to anchor inflation expectations firmly on a declining path.
The headline inflation declined consistently between January to April but increased in May and June on account of a variety of factors, including higher food prices, implementation of new tax measures, and utility tariff adjustments.
The overall inflation increased from 41.2 percent in April to 42.2 percent in May, then further to 42.5 percent in June and to 43.1percent in July. Underlying measures of inflation have all ticked up in May 2023. While core inflation picked up, consumer and business inflation expectations also increased slightly, while bank’s inflation expectations remained flat, but at an elevated level.
The food inflation inched up to 54.2 percent in June 2023 from 51.8 percent in May and 48.7 percent in April. Non-food inflation, in contrast, declined to 33.4 percent in June 2023 from 34.6 percent in May and 35.4 percent in April.
Imported inflation inched up to 44.5 percent in June from 43.8 percent in May. This was in contrast to local inflation, which declined to 35.9 percent in June from 36.2 percent in May.
However, the month on month, inflation slowed to 3.2 percent in June 2023 from 4.8 percent in May 2023. Monthly food inflation eased to 3.9 percent in June 2023 from 6.2 percent in May.
Likewise, monthly non-food inflation eased to 2.6 percent, from 3.5 percent over the same period. Core inflation also inched up in the May and June. Core inflation, excluding energy and utility prices, increased to 43.5 percent in June 2023, from 42.8 percent in May, and 41.7 percent in April.
Business and consumer inflation expectations also inched up slightly, while banking sector inflation expectations remained flat. The increase in headline inflation since the last MPC meeting reflected strong food price pressures, implementation of new tax measures, and utility tariff adjustments.
These pressures were moderated by relative exchange rate stability, stable ex-pump petroleum prices, and the tight monetary policy stance that is supported by effective liquidity management by the Bank of Ghana.
