Rising Inflation lingers as it hits 18.9%, May

Business News of Friday, 17 June 2016

Source: B&FT


Inflation DiagramFile photo

Inflation continues to see an upward trend, as the latest figures released by the Ghana Statistical Service (GSS) shows it has increased from 18.7 percent in April to 18.9 percent in May.

The rise, according to the GSS, was largely driven by high prices experienced in the non-food components, particularly transportation, housing, utilities, fuel, education and culture.

The transportation sector contributed 40.9 percent to the non-food component, while housing, water, electricity, gas and other fuels contributed 35.7 percent. The education sector contributed 32.3 percent whereas Recreation and Culture contributed 27.9 percent, taking the overall year-on-year non-food inflation rate for May to 25 percent compared with the 24.8 percent recorded in April.

The year-on-year food inflation rate for the month also inched up from 8.4 percent to 8.5 percent, making it three times less than the non-food inflation rate.

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The price-drivers for the food component were vegetables (11.6%), oils and fats (11.2%), fruit (10.3%), mineral water, soft drinks, fruit and vegetable juices (9.9%), coffee, tea and cocoa (8.9%), and meat products (8.8%).

Some economists have criticised the Bank of Ghana’s decision not to reduce the monetary policy rate but rather increase or maintain it, calling it a wrong approach to arresting the problem.

Leading the charge is Professor Newman Kusi, Executive Director of the Institute of Fiscal Studies (IFS), who told B&FT in February that the central bank’s decision to increase the cost of capital to mop up liquidity from the system as a way of reducing demand or consumption to sustain the pressure on prices is a misplaced approach.

He explained: “The inflation that we have now is not demand-cost but cost-push inflation — in the sense that the exchange rate is being depreciated and this is a country where everything is imported. So as exchange rate depreciates, the landed cost of imports also goes up and automatically feeds into the price”.

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However, the Monetary Policy Committee in May this year maintained the policy rate at 26 percent for the third time this year. The Governor of the central bank, Dr. Abdul-Nashiru Issahaku, maintains that the decision will help the inflation target of 8 percent +/- 2 by mid-2017.

“Our committee has decided to maintain the policy rate at 26 percent…whatever decision we take is to steer inflation toward our medium-term target of 8 percent plus or minus 2%,” Dr. Issahaku told the media.

Meanwhile, the Bank of Ghana says it considers a hike in petroleum prices as a risk factor to attaining its inflation target. According to the Bank, the rise in price of petroleum products will cause inflation to rise.

“We believe in our model, but there are some risks that may affect it. These include unanticipated upward adjustments in utilities and petroleum products prices…so barring any further adjustments in utilities and any disparities, we expect to be on course in relation to our focus,” Dr. Issahaku said.

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