Ghana’s inflation increase temporal – Courage Boti

In an unexpected turn of events, Ghana’s inflation, after experiencing four consecutive months of disinflation, veered off in May 2023, showing an increase of 100 basis points to reach 42.2% year-on-year.

However, according to Courage Boti, Research Lead at GCB Capital, this deviation from the disinflation trend is only anticipated to last a short time.

According to Boti, the upward price pressures resulting from the second-round effects of utility tariff hikes, the 2.5% increase in the Value Added Tax (VAT), and the rollout of three revenue measures from May 1, 2023, outweighed the pull factors, thus, leading to a marginal increase in the headline inflation rate.

The Research lead further explained that the recent upward revisions to utility tariffs for Q2 2023, which took effect on June 1, 2023, as well as the anticipated second-round effects and the delayed impact of the revenue and tariff measures, are likely to cause a further slight increase in headline inflation for June and possibly July 2023.

Nonetheless, the outlook remains positive as Boti expects inflation to resume a declining trajectory thereafter. This expectation is supported by the favorable base drift and decreasing price pressures from the primary drivers of inflation.

IMF’s Program

More so, the official commencement of the International Monetary Fund (IMF) program is anticipated to tighten fiscal and monetary controls, with specific focus on the memorandum on Zero Central Bank deficit financing.

This measure, combined with the continued tight monetary policy stance, is expected to play a crucial role in sustaining disinflation and anchoring inflation expectations lower. Despite its own implications, it is believed that putting these steps into action will go a long way toward establishing long-term price stability.

However, it is important to note that the lingering effects of the new revenue measures and tariff adjustments could persist for some time before gradually dissipating. As Ghana’s economy adjusts to these structural changes, the gradual easing of price pressures is expected to pave the way for a more sustainable disinflationary trend in the medium term.

Nevertheless, market participants and investors remain cautiously optimistic, as the combination of favorable base effects, the IMF program’s impact, and the authorities’ commitment to prudent fiscal and monetary policies seek to provide a solid foundation for sustained disinflation and the eventual stabilization of Ghana’s economy.