Average consumer prices in the country are expected to remain high, well above the Central Bank’s upper target band of 10 percent this year.
According to the International Monetary Fund (IMF), Ghana’s inflation will rise from an estimated end-of-year average of 10 percent in 2021 to 16.3 percent in 2022.
The Fund however, expects inflationary pressures to ease gradually in 2023 which will see inflation declining marginally to 13.0 percent, even though still above the upper band of the Bank of Ghana’s target of 8±2 percent.
With these projections, the Bretton Woods Institution expects average prices in West Africa’s second largest economy to remain above the average for the whole Sub-Saharan African region of 12.2 percent and 9.6 percent for 2022 and 2023, respectively. This means inflationary pressures in Ghana are expected to linger in the next few years, even though Ghana’s average inflation in 2021 was lower than the regional average of 11.0 percent.
Compared to its peer middle-income countries in Africa, average prices in Ghana are among the highest on the continent. Figures from the IMF show that the average inflation rate for middle-income countries in Africa was 5.6 percent in 2021, 4.4 percentage points higher than the estimates for Ghana.
The gap between the figures is expected to remain high, at least, in the next one year. The IMF, in its April 2022 World Economic Outlook, projected average consumer prices for middle-income countries in Africa to rise to 7.2 percent in 2022 before easing drastically to 5.3 percent in 2023.
Zambia is the only country classified by the IMF as a middle-income country in the recent report that had inflation rate higher than Ghana last year. Even that, the IMF expects Zambia’s inflation rate to decline from 20.5 percent in 2021 to 15.7 percent and 9.2 percent in 2022 and 2023, respectively.
Global inflation risks mounting
Global growth continued to recover, supported by accommodative monetary policies, fiscal stimulus packages, and the waning effects of the COVID-19 virus around the world. However, global economic activity faces multiple challenges ahead, reflecting new geopolitical events such as the Russia-Ukraine war.
These challenges have further heightened uncertainties and caused a surge in commodity prices, persisting supply chain bottlenecks on manufacturing output, withdrawal of monetary policy stimulus in some major advanced economies, and vulnerabilities associated with rising debt stocks, especially in emerging market and developing economies.
The surge in commodity prices is biting hard on household consumption in many countries. The elevated inflationary pressures in Ghana resulted in headline inflation rising sharply from 15.7 percent in February 2022 to 19.4 percent in March. Both headline and core inflation are significantly above the upper limit of the medium-term target band of 8±2 percent.
The Bank of Ghana earlier warned that “the uncertainty surrounding price developments and its impact on economic activity subsequently weighed down business and consumer confidence”. Upside risks to inflation have mounted in the country with their manifestation in petroleum price adjustments and transportation costs, and exchange rate depreciation.
Meanwhile, BoG cautioned that it’s latest forecast still depicted an elevated inflation profile in the near term, and it expects inflation to fall within the medium-term target band in about 12 months’ time.
Looking ahead, elevated inflation is expected to persist for longer than envisaged, reflecting the effects of the Russia-Ukraine war on energy and food prices and ongoing supply chain disruptions.