End-year inflation target missed ….as Dec. rate surges to 13.5 percent

Government’s end-of-year inflation target has been missed as headline inflation for December 2013 surged to 13.5 percent, against a target of 9 percent.

The December inflation rate, which is the highest since March 2010, represents a 0.3-percentage-point increase compared to the November rate of 13.2 percent.

The jump was mainly attributed to price changes in housing, water, electricity, gas and other fuels as well as clothing and footwear during the last quarter of 2013, which kept non-food inflation – that constitutes 55.09 percent of the consumer price index (CPI) basket – rising.

“We’ve seen some price changes in the food component and increases in the non-food, especially changes in petroleum prices and utility prices,” acting Government Statistician Dr. Philomena Nyarko told journalists at news conference in Accra.

The increase has given impetus for interest rates to be pegged higher by the Bank of Ghana at its next monetary policy meeting.

Analysts are of the view that on the average the economy has faced massive challenges with lots of external shocks, and some have predicted a further surge in inflation this year based on government’s fiscal and monetary policy framework, expectations for key commodity prices and instability of the cedi against major currencies like the US dollar.

The country’s economy, which depends largely on the export of commodities like oil, gold and cocoa, was hard hit by the persistent fall in commodity prices on the global market last year.

The Public Utilities Regulatory Commission (PURC) increased power tariffs again this month, maintaining that the adjustment will allow utility companies to cut down on their losses.
The weak cedi also contributed to the high rate of inflation last year, with the currency losing 17 percent to the dollar.

Over the coming months, the hike in the value added tax from 15 percent to 17.5 percent is likely to fuel inflation, threatening the Central Bank’s end-2014 target of 9.5 percent.
Inflation dynamics.  The monthly change rate for December 2013 was 1.0 percent, against the 0.8 percent recorded in November 2013.

The food and non-alcoholic beverages group recorded an average year-on-year inflation rate of 7.2 percent, 0.1 percentage points lower than the 7.3 percent recorded in November 2013.

Three subgroups of the food and non-alcoholic beverages group recorded inflation rates above the group’s average of 7.2 percent.

The non-food group recorded an average year-on-year rate of 18.1 percent in December 2013, compared to a rate of 17.6 percent in November. Two subgroups recorded year-on-year inflation rates above the group’s average rate.

Housing, water, electricity, gas and other fuels recorded the highest rate of 35 percent, followed by transport, which recorded 25.6 percent. Inflation was lowest in the communications subgroup, which recorded 4.4 percent.

At the regional level, the inflation rate ranged from 6.2 percent in the Upper West Region to 14.8 percent in the Central Region. Five regions, namely Central, Greater Accra, Eastern, Western and Ashanti, recorded inflation rates above the national average of 13.5 percent.