Ghana's Inflation drops again

September inflation for Ghana eased for the 15th month in a row, data released by the Ghana Statistical Service said.

Ghana's annual inflation fell to 9.38 percent from 9.44 percent in August, extending a run that has seen consumer price grow more than halve from its June 2009 level of 20.7% and confounding market expectations of a slight rise.

"It is difficult to forecast inflation for the next month -- all depends on how the government handles the pressures," Government statistician Grace Bediako said of moves to implement a new public sector wage structure seen as raising spending.

The move to a Single Spine Salary Structure (SSSS) is aimed at putting all public sector workers on the same pay scale and is seen as potentially inflationary because many will see their salary bracket revised upwards.

She said September inflation would have been much higher were it not for the impact of low food prices at harvest time.

"With the Bank of Ghana having left interest rates on hold at their September Monetary Policy Committee (MPC) meeting, this is hardly a resounding call for further easing," said Standard Chartered's Razia Khan of last month's decision to hold the prime rate at 13.5 percent ,reports Reuters.

"We expect the prime rate will be kept on hold over the coming months," she said of a scenario that would mean a clear break in a monetary easing cycle that has seen 500 basis points knocked off the rate since November 2009.

Lisa Lewin at Business Monitor International said a small 50-basis-point cut was not ruled out at next month's meeting of the MPC but said it was a "watch and wait" situation for now,reports Reuters
"The seasonal effects will wane by year-end, likely presaging a return to double-digit (inflation)," she said.

The continuous drop reflects the effects of government’s relatively tight fiscal and monetary policies in its fiscal economic management and the stability of the cedi against major trading currencies in the past quarter.

The Government Statistician explained that current downward pressures on the CPI were driven generally by both the food and non-food sectors.

The non-food component, which constitutes 55.09 percent exerted much more inflationary pressure with items such as alcoholic beverages, tobacco and narcotic recording (19.65 %), hotels and restaurants (17.17%), housing, water, electricity, gas and other utilities (15.99 %) and Clothing and footwear (15.33%) being the main drivers of the current inflationary.

“The four sub-groups recorded inflation rates above the non food group’s average of 11.84 percent.”

The non-food inflation rate has been declining, though still in double digit; falling from 18.79 percent in January 2010 to 11.89 percent in July 2010 before increasing to 12.25 percent in August 2010.

On the other hand, the food and non-alcoholic beverages group, which constitute 44.91 percent of the CPI, had bread and cereals (-4.29%) and oils and fats (3.99%) recording inflation rates lower than the group’s average.

The group has been recording single digit inflation rate since January 2010, falling from 9.08 percent to 4.69% in May 2010, before rising to 6.13 % in June 2010.

The outlook, as assessed by the Central Bank, points to lowering inflationary risks, an indication that the real value of money will continue to rise, implying commercial banks should become more willing to reduce lending rates.

PUBLIC DEBT CONCERNS

Ghana's 2017 8.5 percent coupon Eurobond GH032376037 traded with a little changed 5.873 percent yield on Wednesday.

Ghana is looking to produce around 125,000 barrels of oil per day from the first phase of its Jubilee field due to start in December, rising to 250,000 bpd by a second phase in 2013 that would place it among the world's top 50 producers.

Economic growth is set to triple from around 5 percent this year to 15 percent in 2011, a prospect that has buoyed the Eurobond and Ghanaian cedi for months. But worries are growing about a rise in public borrowing.

The public deficit is forecast around 9 percent of gross domestic product for this year and the International Monetary Fund this month warned against the risk of Ghana building up an unsustainable stock of public debt.

Some analysts have expressed concern about the lack of detail over terms of some $13 billion of loan deals with Chinese investors announced last month (Additional files from Reuters)