2009 inflation target missed narrowly

Government’s end of year inflationary target has been narrowly missed as headline inflation for December 2009 recorded a figure of 15.97 percent against the target of 14.5 percent.

The December figure however represents a 0.95 percentage point drop when compared to the November figure of 16.92 percent.

The decrease was the lowest recorded in the year and was mainly attributed to the non-food group of the consumer basket, which constitutes 55.09 percent of the consumer price index (CPI).

Analysts are of the view that on average the economy has been resilient, being able to withstand shocks - especially in the heat of the global financial meltdown.

Analysts predict a further fall in year-on-year inflation this year, based on government’s broad fiscal and monetary policy framework, expectations for key commodity prices and a weakening US dollar.

With this drop, hopes are rekindled that interest rates - a major headache for businesses in the country - will continue to fall, with a possible cut in Bank of Ghana’s prime rate in the first quarter of 2010.

The Bank made its only cut in the rate at which it lends to the banks in November 2009, bringing it down by 0.5 percentage point to 18.0 percent.

The Ghana Statistical Service (GSS), which released the latest inflation figures in Accra last week, said the non-food component of the consumer basket was the main driver behind the movements in inflation rate for the whole year.

Dr. Grace Bediako, Government Statistician, briefing the media in Accra last week said the sectors that drove the decrease in the inflation rate were recreation and culture, furnishing, household equipment, clothing and footwear.

The rest were hotels, cafés and restaurants, while bread and cereals, vegetables, fish, and meat in the food and non-alcoholic beverage component also contributed high margins that drove the decrease.

Headline inflation began the year at 19.86 percent in January 2009 and rose all year to its highest level of 20.74 percent in June, after which it embarked on a downward trend.

The movements saw average inflation for 2009 rise to 19.29 percent, the highest in five years, from about 14 percent in 2008.

The factors that accounted for the rising inflation in the later part of 2008 were largely responsible for the increases in early 2009.

The new inflation rate is a major boost to the President Atta Mills-led government which marked its first year in office on January 7 this year. The government aims to stipulate economic activity in the year, after the strict stabilisation policies pursued last year.

A key target is to grow the economy by 6.5 percent this year from 5.7 percent last year, while bringing inflation down further to a single digit by end-December 2010.