Surging utility prices, weak cedi push producer inflation upward

Surging utility prices and a weakening cedi have pushed the producer price index up to 19.5 percent in April from a revised 19.2 percent during a 12-month period, Ghana Statistical Service has said.

Government statistician Philomena Nyarko confirming the figures at a media briefing to announce the April producer price inflation in Accra, and said depreciation of the cedi and the lack of constant electric power supply for industries were among major drivers of April producer inflation.

“The increase was mainly due to increases in the price of gold and decline in the value of the cedi, and inflation rates could be stabilised if these factors remain stable,” she said. 

 This figure represents an increase of 0.3 percentage points for all industry, and was also attributed to increase in inflation rates in the mining and quarrying sub-sector, depreciation of the cedi, an the lack of constant electric power supply for industries.

Data from the producer price index shows that the mining and quarrying sub-sector recorded the highest year-on-year producer price inflation rate of 27.1 percent, followed by the utilities sub-sector with 20.7 percent while the manufacturing sector recorded the lowest rate of 17.0 percent. 

The trend of rising utility prices has a drastic impact on the cost of living for households in the country. 

The Public Utilities Regulatory Commission (PURC), in spite of the erratic supply of electricity, last month announced its plans to increase power tariffs by 2.63 percent while the water tariff will be increased by 1.06 percent, effective April 1, 2015.

According to the PURC, in calculating the tariffs for the second quarter’s Automatic Adjustment Formula it arrived at an actual increase of 31.73 percent cumulative for electricity and 21.30 for water; but using the decision variable, it decided to pass on a minimal tariff increase. 

In October 2013, government announced major hikes in electricity and water tariffs after more than a year of subsidies. The hikes were followed by increases in January and July, causing power and water tariffs to jump by 96 percent and 72 percent respectively over nine months.

The weak cedi has also contributed to the high rate of inflation this year, with the currency losing in the foreign exchange market -- indicating a further weakening of the domestic currency in 2015.

She explained that the mining and quarrying sector, led by gold prices, rose 4.2 percent to 27.1 percent in April, followed by utilities at 20.7 percent. 

The economy has been grappling with crippling power-cuts, which the government has blamed on inadequate generation capacity in past years. The cedi has depreciated around 18 percent since January. 

The monthly changes in the producer price index indicated that mining and quarrying recorded the highest inflation rate of 7.5 percent, followed by the utilities sub-sector with 4.5 percent.  The manufacturing sector recorded the lowest inflation rate of 1.0 percent.

 

Producer inflation dynamics

The year-on-year inflation in ex-factory prices of goods and services was 19.5 percent for April 2015.  From April 2014, producer price inflation began an upward trend and increased consistently over five months to record 48.6 percent in August 2014. 

However, from thereon the rate consistently declined to record 19.2 percent in March 2015, but inched up to record 19.5 percent in April, 2015. 

Manufacturing sector

During the month of April 2015, 11 out of the 16 major groups in the manufacturing sub-sector recorded inflation rates higher than the sector average of 19.5 percent. 

Publishing, printing, and reproduction of recorded media recorded the highest inflation rate of 56.0 percent, while the manufacture of Coke and refined petroleum products recorded the lowest producer price inflation rate. 

Petroleum sector

The inflation rate in the petroleum sub-sector was 47.2 percent in April 2014; but the rate started rising in July 2014. 

Thereafter, the rate fluctuated until November 2014 to record 61.1 percent. Since then, the rate has consistently declined to record -8.7 percent in March 2015 and subsequently to -9.6 percent as a result of base drift effect and the decrease in ex-refinery prices of petroleum products.