Wednesday, November 18, 2009

October inflation eases to 18.04%

Year on year inflation has eased for the fourth consecutive time in the year, to the October rate of 18.04 percent.

The further drop represents a decline of 0.33 percentage points from the September rate of 18.37 percent.

The decrease was mainly driven by the non-food group which constitutes 55.09 percent of the consumer price index (CPI).

Official figures released by the Ghana Statistical Service (GSS) named hotels, cafes, restaurants, recreation and culture as the main movers of the decrease in the non-food component.

Fish, bread and cereals were the major contributors to the decrease within the food and alcoholic beverage component of the national basket.

Consequently, contributions to the October rate shows that inflation for the non-food group was 21.15 percent, far higher than the 13.53 percent inflation recorded by the food group.

Briefing the media in Accra on the latest developments in the CPI, Mr. Ebow Duncan, Head of Economic Statistics at the Ghana Statistical Service explained that the latest declines follow the trend of the full cycle of the harvest season, usually starting from August and ending in October.

Though he was not certain what the outcome would be in the coming months, Mr. Duncan was sure that government’s end-year inflation target of 14.5 percent cannot be attained.

“It will be difficult to achieve the government’s end of year target for the year, considering the trend. The pass-through effects from the revised fuel prices, the upcoming festive season and imported inflation are the other major determining factors,” he pointed out.

Government is however optimistic inflation will continue to fall to the end of the year, and possibly reach an end-year record that is close to its target.

This is based on the tight fiscal stance of the budget and the relative stability of the cedi since the latter part of the third quarter.

The Poverty Reduction and Growth Facility (PRGF) programme that government locked into with the World Bank and the International Monetary Fund (IMF) in June gave government some US$600 million balance of payment support and another US$400 million special drawing rights disbursements, aside from budgetary supports.

These monies helped in shoring-up foreign reserves, which were valued US$2.27 billion in September - enough to cover 2.2 months of imports of goods and services - from US$1.77 billion in August 2009.

Between January and August 2009, the cedi depreciated cumulatively - by 16.7 percent against the dollar, 24.7 percent against the pound sterling, and 17.5 percent against the euro. In year-on-year terms, the comparative depreciations were 12.9, 5.4 and 12.5 percent respectively.

The depreciation however slowed down after the first half of the year, and the cedi actually appreciated by 1.7 and 0.5 percent against the US dollar and the pound sterling respectively in August.

The broad macroeconomic agenda thus played a leading role when inflation began easing after the first half. It fell from the peak of 20.74 percent in June to 20.50 percent in July and further to 19.65 percent in August.

It was a major positive indication for the President Mills administration when year-on-year inflation dropped more drastically in September to 18.37 percent, even though some economic research organisations such as the Centre for Policy Analysis (CEPA) are not over-excited because of the socio-political costs of the government’s economic stabilisation agenda.

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