Inflation target missed narrowly

Government’s end-of-year inflation target has been narrowly missed as headline inflation for December 2012 slipped to 8.8 percent, against a target of 8.5 percent.

 

The figure represents a drop of 0.5 percentage points compared to the November rate of 9.3 percent.

The decrease was mainly attributed to the stability in the exchange rate during the last quarter of 2012, which kept non-food inflation – that constitutes 55.09 percent of the consumer price index (CPI) basket – moderated. 

“We think that it is the stability in the exchange rate; we didn’t see any changes in petroleum prices and utility prices,” acting Government Statistician Dr. Philomena Nyarko told B&FT in an interview at a news conference in Accra.

With this drop, hopes are rekindled that interest rates – a major headache for businesses in the country – will continue to fall, with a possible cut in the Bank of Ghana’s policy rate in the first quarter of 2013.

Analysts are of the view that on the average the economy has been resilient, being able to withstand external shocks, and some have predicted a further fall in inflation this year, based on government’s broad fiscal and monetary policy framework, expectations for key commodity prices and a stable cedi against major currencies like the US dollar.

In a statement signed by Abdul Hakim Ahmed, Media Liaison at the Ministry of Finance and Economic Planning, the government said the December 2012 inflation of 8.8 percent not only shows a drop in three consecutive months from October to December but also marks 31 consecutive months of single-digit inflation in the country. 

“This development is in clear contrast to the belief of some commentators, who were less optimistic and predicted that inflation was likely to return to double-digit zone by the end of the year on the back of higher petrol and electricity tariff increases, a weaker domestic currency, and higher food prices.”

The statement explained that inflation has stabilised due to the prudent fiscal policy of the government and continued monetary restraint which helped anchor inflationary expectations.

Food inflation, after rising from 4.3 percent in February 2012 to 5.5 percent in July, fell steadily, reaching 3.9 percent in December. Non-food inflation increased from 11.2 percent in February to 12.5 percent in August, before dropping to 11.6 percent in December. 

“The medium to long-term outlook for inflation is more promising,” the Finance Ministry statement said. “With a strong economic growth forecast, tight fiscal stance, current levels of interest rates, and greater exchange rate stability, we expect inflationary pressures in the country to remain moderate and inflation to drop to five percent in the medium term. In the end, however, inflation will continue to be heavily influenced by food prices.”

Headline inflation began the year at 8.7 percent in January 2012 and fell to its lowest level of 8.6 percent in February, after which it embarked on an upward trend, hovering around 9.1and 9.3 percent within the months of April and November 2012.

At the regional level, the year-on-year inflation rate in December ranged from 6.2 per cent in the Upper East and Upper West regions to 11.2 percent in the Greater Accra region.

Three regions, including Greater Accra, Central, and Northern, recorded inflation rates above the national average of 8.8 percent.