Producer inflation drops, but business less optimistic

Year-on-year inflation from the producer’s perspective for June 2011 was 12.15%, a drop by 11.05 percentage points relative to the May figure of 23.20 %, the Ghana Statistical Service (GSS) has announced.

The substantial drop owed to the tapering off of the year-on-year effect of the June 2010 hikes in utility prices on the producer price index (PPI). Utility price inflation, which accounts for 16 percent of the index, was down to 0.27% year-on-year, from 71.84% in May.

In June last year, the cost of water and electricity for industries was increased by as much as 200 percent, following demands by service providers for price-adjustments.

Meanwhile, a June survey by the Bank of Ghana revealed business optimism was down compared to two months before. The Bank said its business confidence index dropped to 104.1 in June from 106.6 in April.

Firms surveyed were less optimistic about the level and intensity of their capital expenditures. They also expected lower levels of sales, profits and employment opportunities.

Data show credit growth to enterprises remains weak compared with trends observed a year earlier, though it’s been witnessing a gradual pick-up.

A dip in the confidence indicator for consumers may also explain firms’ low expectations regarding future sales and profits.

Overall consumer confidence declined from 100.7 in April to 99.5 in June, driven by weaker welfare expectations, according to the Central Bank.

“While the overall medium-term outlook for growth remains positive, the soft spots lie in the downbeat sentiments of consumers and businesses,” the Bank said.

It warned the headwinds from the low confidence of consumers and businesses could weigh down growth, and therefore requires some policy attention.
Producer inflation analysis.

“The June 2011 producer inflation rate, which represents the lowest rate in 12 months, recorded a sharp decline which is attributed to the drop in the rate for the utility sector. For the past 12 months, the utility sector persistently recorded the highest producer inflation of about 70 percent.

“During the 12-month period, the all industry [index] recorded [its] highest producer inflation rate in April 2011. From June 2010, the rate was quite stable, until November 2010 when it declined,” explained Dr. Grace Bediako, Government Statistician, at a media conference to announce the current Producer Price Inflation (PPI) data.

Mining and quarrying costs rose 30.2 percent, compared with 32.6 percent in May while manufacturing, which comprises 70 percent of the index, rose 11.8 percent in June from 12.1 percent a month earlier, Dr. Bediako said.

She explained that nine out of the 16 major groups in the manufacturing sector recorded inflation rates higher than the manufacturing sector average of 12.10 percent. Manufacture of motor vehicles, trailers and semi-trailers recorded the highest inflation rate of 28.87 percent, while manufacture of fabricated metal recorded a negative change in the rate by 2.33 percent.

Inflation in the petroleum industry has remained stable, recording 27.33% in June 2011, after it jumped in January 2011. The rate had stabilised for the first two months of 2010, but dropped between March and June 2010. It declined again in November 2010 after increasing slightly in October 2010.