Inflation untamed as it rises to 37.2%
Monetary policy rate hikes by the Central Bank seems to be ineffective in driving down the country’s headline inflation as inflation continues its upward trend.
Latest data released by the Ghana Statistical Service (GSS) indicate that inflation rose by 3.3% on month-to-month basis to hit 37.2% in September 2022.
Headline inflation in the previous month – August 2022 – was 33.9%.
According to Government Statistician, Professor Samuel Annim, five groups recorded inflation rates higher than the national average in September.
They were Housing, Water, Electricity, Gas and Other fuels (68.8%); Furnishings, Household Equipment and Routine Household Maintenance (51.1%); Transport (48.6%); Personal Care, Social Protection and Miscellaneous Goods and Services (42.6%) as well as Food and Non-Alcoholic Beverages (37.8%).
The implementation of the utility tariff in September 2022 influenced the surge in inflation in Housing, Water, Electricity and other Fuels group.
Eastern region (47.1%) maintained its lead as the region with the highest inflation. It was followed by the Greater Accra and Ashanti regions.
The Upper West region recorded the least rate of inflation of (22.9%)
Growth in the country’s headline inflation will result in harsher living conditions for Ghanaians, a possible hike in the policy rate of the BoG in its next MPC press briefing and in turn higher interest rates on loans to households and businesses.
BoG’s policy rate now 24.5%
The Central Bank last week increased its monetary policy rate by 250 basis points (2.5%).
On the back of the increment, the Bank of Ghana’s monetary policy rate rose to 24.5% from the previous rate of 22%.
Cumulatively, the policy rate hikes by the Central Bank since November last year, comes to some 11,000 basis points (11%).
The hike in policy rate by the BoG is on the back of the increment in the country’s headline inflation rate which hit a record high of 33.9% in August.
Given the hike in policy rate, interest rates on loans to the private sector is expected to increase, further making costs of production by businesses in the country more expensive.
Announcing the new policy rate, the Governor of the Central Bank, Dr Ernest Addison, noted the Bank’s decision to increase the policy rate is due to the fact that, “inflation remains elevated and the balance of risks is on the upside. Although the forecasts are for monthly inflation to continue to slow down, the risks are on the upside, emanating largely from pass-through effects of the currency depreciation, the recent upward adjustment in utility tariffs, and rising inflation expectations.
“The Committee remains committed to re-anchoring inflation expectations and returning to a disinflation path. Under the circumstances, the MPC decided to increase the Monetary Policy Rate by 250 basis points to 24.5 percent”.
IMF advises BoG to stay on monetary policy tightening course
Meanwhile, the IMF has urged Bank of Ghana (BoG) and Central Banks around the globe to continue on the path of monetary policy tightening despite the economic pain it will cause.
According to the Fund, the BoG and other Central Banks need to keep “moving forcefully to get inflation back under control.”
“Rapid and synchronized interest-rate increases are squeezing businesses and consumers around the world, and there is a risk that policy makers will go too far and cause an “unnecessarily harsh recession,” said Pierre-Olivier Gourinchas, the IMF’s economic counsellor and head of research.
But there is also a risk that central banks won’t do enough to combat soaring prices and will allow high inflation to become entrenched in consumer and business psychology, as happened in the 1970s.
“The costs of these policy mistakes are not symmetric. Misjudging yet again the stubborn persistence of inflation could prove much more detrimental to future macroeconomic stability by gravely undermining the hard-won credibility of central banks,” Mr Gourinchas said.
This advice contrasts with a recent report by the United Nations Conference on Trade and Development, which said central banks are driving the world economy toward a painful recession and called on policy makers to stop raising interest rates. However, it echoes the hawkish rhetoric coming from many central banks themselves.
