June inflation falls to 8.59 %

Current statistics on the Consumer Price Index (CPI) released by the Ghana Statistical Service show a continuing decline in inflation for June 2011, recording the fourth consecutive fall since February.

The rate for June 2011 stood at 8.59 percent, representing a further decline of 0.31 percentage points from the May figure of 8.90 percent.

The rate of inflation fell continuously over 19 months, from 20.74 percent in June 2009 to 8.58 percent in December 2010; but it rose subsequently to 9.1% in the first quarter of this year after a hike in retail fuel prices. Generally, it has remained relatively stable since June 2010, with rates ranging between 8.58 and 9.52 percent.

“The continuous fall in inflation is driven generally by food and non-alcoholic beverages group, while the non- food group inflation has remained stable since June 2010, between 11.22 and 12.44 percent,” said Government Statistician, Dr. Grace Bediako, at a media briefing in Accra to announce the figures.

In the food group, which has a weight of 44.91 percent, sub-groups with the highest inflation rates were Sugar, jam, honey, syrup, chocolate and confectionary (14.17%), Oil and fats (13.75%),Coffee, tea and cocoa (12.03%); and Fruit (11.92%). The average June food inflation rate was 2.78 percent.

On the other hand, the non-food group, with a weight of 55.09 percent, had a bigger influence on the rate of inflation. Transport prices, which registered 23.35%, remained the highest contributor to inflation in the non-food group.

Miscellaneous goods and services (17.39%) and Housing, water, electricity, gas and others (14.72%) recorded rates higher than the average June non-food inflation rate of 12.44 percent.
Dr. Bediako disclosed: “Single digit inflation is likely to be maintained till the end of the year if current conditions are maintained.

“For the period of the last 12 months or so, the rate has been changing within a band. We see that from June 2010 it was within 9 and 10 percent and it remained in that band for the whole twelve months, ranging between 8 and 10 percent.

“So there are changes, there are increases and slight declines and so on, but still within a two percent range.”

Greater Accra recorded the highest regional inflation of 12.48 percent with Volta region recording the lowest inflation of 4.65 percent. The Western and Central regions also recorded inflation rates above the national rates of 8.59 percent.

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.

The Bank of Ghana cut its prime interest rate by 50 basis points to 12.50 percent, reaffirming its view that annual inflation is on target to remain around nine percent by year-end.

Inflation Outlook

“Now it looks obvious that inflation will continue to slow into the third quarter and most likely close the quarter at 7 percent,” Sampson Akligoh, an economist at Databank Financial Services, said.

“Government’s plan to increase spending through a supplementary budget does not pose a fiscal threat, because of a six-month lag effect. That notwithstanding, a stable cedi will continue to support the disinflationary trend.”

After weakening as much as 5.7 percent against the dollar in the first five weeks of 2011, Ghana’s cedi has stabilised and is now only 2.2 percent down in the year, easing pressure on import costs.

Slowing inflation enabled the central bank to cut its key interest rate by 5 percentage points in the 12 months through July 2010. It resumed the rate reductions on May 13 and again on July 6, lowering the key rate to 12.5 percent.

“The Bank of Ghana will see this as a vindication of its earlier decision to cut rates,” Razia Khan, head of research at Standard Chartered Bank Plc, London, said.