Ghana’s inflation rate jumps to 27.6% in June, the fastest pace since 2004, with prices of consumables leaping higher. This follows immediately after the rise in petroleum products, as effect from the Russia-Ukraine war continue to hit a recovering economy post COVID-19. This inflation rate is twice more than the Central Bank’s inflation forecast of 8% to 10% this year.
Food prices in Ghana climbed 30.1% from a year earlier, compared with a 26.6% increase in April. Non-food inflation accelerated to 25.7% from 21.3% in prior month. Transport costs keep rising at 39%.
Inflation had already hit a level of 23.6% in April 2022, for the first time over a decade. In this same month, the government, through the Central Bank tried to clamp down prices by increasing the Monetary Policy Rate (MPC) to 19% after it has already been increased in March to 17% from 15%. The intention was to make cedi investment attractive, make lending expensive which squeezes liquidity and reduces purchasing power over supply thereby creating stability in the prices of goods and services.
Irrespective of this control, inflation has risen than expected. Questions keep running through minds; Is this a sign of Hyperinflation? Should Ghanaians expect a further increase in the monetary policy rate by the Bank of Ghana? Or any fiscal policy change by the Ministry of Finance?
A hyperinflation is a period of currency instability and rapid hikes in the prices of goods and services, usually above 50%. Generally, the Ghana Cedi has been stable against the dollar over the past two months pegged at GHC8/USD1. Also, the rate of inflation is too low and early to consider the period as a hyperinflation period although the inflation rate is rising faster than the Central Bank anticipated.
The Bank of Ghana Governor Ernest Addison has stated that the inflation rate may climb further in the coming months, albeit a slower pace which necessitated the MPC rate hike last month. This hike will take more than a couple of months to achieve its goal so a further rise in the MPC rate is unlikely to happen till 4th quarter of the year.
For fiscal policies, any change anticipated may come from the side of taxation, particularly on imports, i.e., reducing taxes on imports and expanding the exemption net to manage the prices and cost of imports. However, looking at the recent government appetite for more revenue and the recent discussions around the tax exemption bill, this does not look likely.
All is not cast in stone! Ghanaians are hopeful and looking forward to price stability and a favorable economic condition as we near half year 2022.
Edem Korbla Agbavor.
