Inflation jumps to 11.8 % ….expected to ease in coming months

A local currency weakened by 1.7 percent depreciation in July pushed inflationary pressures upward to 11.8 percent for the first time in three years.

 

Ghanaians’ appetite for foreign consumer goods such as foods can be blamed for the surge in inflation for July.

Consumer price inflation rose to 11.8 percent in July compared with 11.6 percent in June, Dr. Philomena Nyarko, Government Statistician, said on Wednesday.

Food inflation was unchanged at 7.3 percent in July, the same as in June, while non-food inflation ticked slightly higher at 15.4 percent from 15.1 percent.  Clothing and footwear contributed 18.1 percent to the rate of inflation while miscellaneous goods and services added 17.7 percent.

“The exchange rate affected costs, especially imported foods,” Dr. Nyarko said. 

The rise, which represents 0.2 percentage points, was mainly driven by clothing and footwear, miscellaneous goods and services, furnishing, household equipment and housing -- largely influenced by the cedi exchange rate.

The rise is just outside the central bank’s target band of 2 percentage points either side of 9 percent, but it is expected to start easing in the next few weeks.

Dr. Nyarko, speaking to journalists in Accra at a news conference to announce the rate, explained that inflation is expected to fall when the harvesting season begins.

The pieces haven't fallen into their right places when it comes to macro-economic stability since the year began. 

But there have been concerns about macro-economic instability, due partly to the country’s increased deficit -- which is this year targetted to fall to about nine percent from 11.8 percent of gross domestic product in 2012.  The economy is forecast to grow at eight percent for 2013.

The wage bill jumped from about GH¢2billion prior to implementation of the new pay policy to about GH¢7billion in 2012, according to data from that year’s budget.

The deficit between January-April, this year stood at GH¢3.4billion -- equivalent to 3.8 percent of GDP but higher than the target of GH¢2.7billion, or 3 percent of GDP.

Government plans to streamline its expenditure and has requested Parliament to enact new tax measures to keep its 9 percent of GDP fiscal deficit target on track. Approximately 73 percent of domestic revenue from taxes is used to pay public service workers.

The cedi has been weak, partly due to fiscal irresponsibility on the part of government; and a balance of payment deficit, revenue shortfalls, heavy domestic borrowing by government, and other factors have also put the economy in very bad shape. 

The Bank of Ghana held its key lending rate at a 3 1/2 year high of 16 percent on July 31 to help halt the cedi’s slide. Proceeds from loans for cocoa purchases and a Eurobond sale last month are set to boost foreign-currency reserves and support the local currency.

Dr. Nyarko said: “Under normal circumstances, you would expect a decline and then an increase. Inflation should fall when harvest starts. The decline will be because of the harvest period, and an increase because of the celebrations in December. That is the trend that we expect, all things being equal; but we cannot be certain.”

She said imported food items for local supply influenced greatly the current inflation ahead of the start of the harvest season.