October inflation rate flat at 9.38 %

The Headline inflation rate was flat at 9.38 percent for October 2010, halting the 15th consecutive monthly fall since June 2009, when the rate stood at 20.74 per cent, data released by the Ghana Statistical Service has shown.

October’s rate which stood at 9.38 percent is the same as that of the previous month-September, meaning that the general price level in the country increased by 9.38 percent in October 2010 relative to October 2009.

Magnus Ebo Duncan, Head of Economics and Statistics at the Ghana Statistical Service at a media briefing in Accra explained that although there was a change, it was too small to make any impact in the calculation of the rate.

He explained that current downward pressures on the Consumer Price Index (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 (19.39 %), hotels and restaurants (15.70%), housing, water, electricity, gas and other utilities (15.71 %) and Clothing and footwear (14.95%) being the main drivers of the current inflationary. Prices of products in the Communications sub-group remain constant recording zero inflation rate.

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 (-3.38%) vegetables including potatoes (3.78 %), and food products (5.46 %) 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.
Meanwhile, the Centre for Policy Analysis insists that the downward trend is likely to cease and inflation rate will start rising.

Analysts have contended that 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 outlook, as assessed by the Bank of Ghana (BoG), 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 to improve private business growth.

AVOIDING THE BOOM-BUST

Razia Khan of Standard Chartered Bank noted that while early revenues from oil production, due to reach 125,000 barrels a day next year, would be modest, at least Ghanaians could expect to benefit from continued price stability.

"A commitment to a sound macroeconomic backdrop that lessens the likelihood of boom-bust cycles is the best that the authorities can deliver for now," she noted.

Yet some analysts still see scope for a further rate cut. Kobla Nyaletey of Barclays Ghana, saw inflation falling further to close the year at around 8.5-9 percent.

"We see inflation falling in November and December to ... strengthen the case for a further rate cut at the December Monetary Policy Committee sitting," he said.
The figures come a week after Ghana unveiled a long-awaited statistical re-basing of its economy that added over 60 percent to its national output figure by better reflecting recent growth areas such as mobile telephony and banking.

Although purely a statistical readjustment, the re-basing prodded Ghana's annual per capita income above the $1,000 threshold, allowing it to join the World Bank ranking of middle-income countries including Thailand and Ivory Coast.

The International Monetary Fund last month downgraded its expectations of Ghana's oil earnings in 2011 to the equivalent of three percentage points of gross domestic product from an earlier estimate of five percentage points of GDP.

The revenue boost will barely cover the cost of implementing a new pay structure for the country's public sector workers which the IMF calculated would cost the country the equivalent of a minimum 2.5 percent points of GDP.
(With additional files from Reuters)