Inflation drops back to 8.6%

Headline consumer inflation fell back to 8.6 percent in February, after a marginal increase to 8.7 percent in January, the Ghana Statistical Service (GSS) said on Wednesday.

Both food and non-food inflation dropped in the month, touching 4.3% and 11.2% respectively, the GSS said. Inflation rates in the two groups were 4.5% and 11.3% respectively in January.

“The food and non-alcoholic beverages group has been recording single-digit inflation since January 2011, while non-food inflation has remained stable between 11.1% and 12.4% since February last year,” said Dr. Philomena Nyarko, acting Government Statistician, at a media briefing in Accra.

The latest inflation reading shows weaknesses in the cedi since the year began have yet to have any significant impact on inflation, with most prices -- especially foodstuffs -- remaining stable.

Last month, the Bank of Ghana hiked its policy lending rate by a percentage point to 13.5% to avert further cedi weakness and keep prices in check.

The International Monetary Fund said this month that the hike notwithstanding, Ghana’s economy is exposed to upside inflation risks from currency depreciation and high domestic demand, as well as to a possible deterioration in the external position should a deeper global slowdown weaken foreign inflows.

Ghana’s trade deficit widened by 8% in 2011 to US$3.2billion, confounding expectations that new oil receipts would narrow the gap from the previous year. An estimate by investment bank Renaissance Capital said the current account deficit soared to 8.5% of GDP from 7.2% in 2010.

“The government’s main challenge for 2012 will be to maintain the hard-won stabilisation gains – strong broad-based growth, single-digit inflation and fiscal consolidation – in the face of resurgent global risks,” the IMF said.

The Fund said the government should guard against actions that would jeopardise 2012 fiscal targets, and warned rising world oil prices will have to be passed on to consumers at the pumps to avoid the re-emergence of costly subsidies.

Fuel subsidies cost the government GH¢365million in 2011, according to Finance Minister Kwabena Duffuor, and their removal in late December caused hikes of 15% in petrol and diesel prices, and 30% in the price of Liquefied Petroleum Gas (LPG.

The subsidy-bill had not been budgeted for, and the Centre for Policy Analysis (CEPA) said the government should not have provided them without parliamentary approval.

Meanwhile, strong revenue collection by state agencies helped lower the budget deficit to 4.3% of GDP in 2011from 6.8% of GDP in 2010. The government had forecast a fiscal gap of 5.1% of GDP, later revised to 4.8%.

This year, it has targetted a fiscal deficit of 4.8% of GDP, but analysts have warned the limit could be breached over pressures to spend during the elections.
Renaissance Capital has forecast a deficit of 5.1% of GDP in 2012, and expects the current account gap to increase to 8.7% of GDP from 8.5% in 2011.

“We think the budget will come under pressure in 2012, given that this is an election year and the government is planning to step-up capital spending to 8.2% of GDP from 7.6% of GDP in 2011,” Renaissance said.