The pass-through effect of the recent hikes in petroleum prices and utility tariffs on the general price levels of goods and services continues to push the rate of inflation further beyond the single digit target of the government.
The phenomenon has also been aggravated, to a large extent, by the depreciation of the cedi against major foreign trading currencies, especially the US dollar.
Last month, inflation rate recorded shot up to 13.8 per cent, the highest the country has recorded since March 2010 (13.2 per cent) and has since then been a single digit till the beginning of 2013 when it reverted to a double digit (10.1 per cent), maintaining that rise to date.
Although, it might yet be early days to predict whether or not the government’s single digit target will be met, considering the continuous increases in petroleum products and utility tariffs and high taxes on goods and services.
At a news conference in Accra last week, the Government Statistician, Dr Philomena Nyarko, who was not in the position to predict what the trend was likely to be in the coming months, explained that “as people put it, if the cedi is chasing the dollar, obviously prices of goods will go up.”
Unlike the usual trend where the non-food basket contributed largely to increases in inflation, in January, a combination of the increase in the food and non-food basket used in the computation of inflation pushed the figure up.
The year-on-year non-food inflation rate for January 2014 was 18.9 per cent, compared to 18.1 per cent recorded in December 2013, with the main price drivers being housing, water, electricity, gas, other fuels (37.9 per cent), transport (21.4 per cent), clothing, footwear (20.2 per cent) and miscellaneous goods and services (19.3 per cent).
Meanwhile, the food inflation group recorded a rate of 7.1 per cent in January, a marginal decline from the 7.2 per cent recorded for December 2013, largely due to mineral water, soft drinks, fruit juices (16.1 per cent), milk, cheese, eggs (10.3 per cent), coffee, tea, cocoa (10.3 per cent), meat and meat products (10.0 per cent).
At the regional level, the Ashanti Region recorded the highest inflation rate of 16.9 per cent, followed by the Central Region with 14.8 per cent, with the Upper West Region recording the lowest rate of 10.5 per cent.
Cedi depreciation and inflation
The cedi in January alone, according to the Governor of the Bank of Ghana, Dr Henry Wampah, depreciated by 7.8 per cent against the US dollar, compared to 0.2 percent in the corresponding period in 2013.
According to him, developments in the advanced countries, especially the US, have resulted in foreign exchange market pressures in emerging market economies which, together with the domestic pressures noted above, have increased the risks of inflation and exchange rate.
“The uncertainties in the outlook and weakened domestic fundamentals underscore the need for continued tight fiscal and monetary policies and measures that would reduce the country’s vulnerability to shocks, re-anchor inflation expectations and ensure macroeconomic stability,” he told an emergency Monetary Policy Committee (MPC) press conference on Thursday, February 6, 2014.