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Inflation to worsen further

By Elorm Desewu

Year on year inflation is expected to worsen further in the coming months in the wake of the decision by the Public Utility Regulation Commission to hike tariffs of electricity and water as well as increase in transport fares by the transport operators in the country.

The Electricity Company of Ghana and the Ghana Water Company have proposed a tariff hike for consumers between of 148 and 334 percent respectively while the transport operators have kicked start with their 20 percent increase in transport fares across the country.

This is expected to impact heavily on the non-food inflation which would trigger a further rise in year on year inflation.

The current development would pose a headache to the seven member committee of the Monetary Policy Committee (MPC) as they commence their bimonthly review of the economy this week.

Already, the MPC has revised it medium term inflation target of 8+/-2 to March 2023.

The Bank of Ghana announced some measures in April this year in relation to universal banks, in attempt to anchor inflation. These include, the Cash Reserve Ratio was increased to 12 percent; the Capital Conservation Buffer was reset to the pre-pandemic level of 3 percent, making the Capital Adequacy Ratio a total of 13 percent; and the provisioning rate for loans in the Other Loans Exceptionally Mentioned (OLEM) category was reset to the pre-pandemic level of 10 percent.

But recent figures from the Ghana Statistical Service, (GSS) depict that year on year inflation measured by the Consumer Price Index, (CPI) increased significantly to 23.6 percent for the 12-months period ended April, 2022 from 19.4 percent in March, 2022.

According to the Ghana Statistical Service, “four divisions – transport (33.5%); household equipment and routine maintenance (28.5%); food and non-alcoholic beverages (25.6%), and housing, water, electricity, gas and other fuels (25.0%) recorded inflation rates above the national average of 23.6% with transport recording the highest inflation.”

National month-on-month inflation from March 2022 to April 2022 was 5.1%.

It also noted that this is the first time in 29 months that inflation for imported items exceeded domestic inflation. Whilst inflation for locally produced items was 23.0%, inflation for imported items was 24.7%.

“The inflation for imported goods is higher than the 17.3% recorded for March 2022 while the inflation for locally produced items is 23.0% higher than the 20.0% recorded in March 2022.”

Whilst Food and Non-Alcoholic Beverages inflation was 26.6%, Non-Food inflation stood at 21.3%.

April 2022’s food inflation of 26.6% is higher than both food inflation for March 2022 (22.4%) and the average of the previous 12 months (13.5%).

Food inflation’s contribution to total inflation however, decreased from 51.4% in March 2022 to 50.0% in April 2022.

All the 15 food subclasses recorded positive month-on-month inflation with Fruit and Vegetable Juices recording the highest of 15.3%.

Non-food year-on-year inflation on average went up again in April 2022 compared to March 2022, that is from 17.0% to 21.3%. Only one out of the 12 Non-food Divisions had the 12 months rolling average to be higher than the year-on-year inflation for April 2022 for the divisions. Transport is the Division that recorded the highest inflation in April 2022 (33.5%).

There is a high expectation that the MPC would again hike the policy rate further to stem the rising inflation.

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