Inflation: GCB Capital Research forecasts rate-neutral monetary policy decisions by the BoG
In a recent analysis, GCB Capital Research underscores the current challenges posed by inflation, which stands at a substantial 40.1%. The research suggests the existence of a noteworthy monetary policy gap exceeding 10%, theoretically allowing for additional policy-tightening measures. However, the report emphasizes that the root causes of inflation extend beyond mere demand-pull factors.
GCB Capital Research anticipates that ongoing macroeconomic and structural reforms, including frontloaded fiscal tightening, debt restructuring, and the memorandum on zero-deficit financing, will play a pivotal role in anchoring the disinflation process once it initiates. Consequently, barring unforeseen external factors impacting inflation in the immediate term, the research expects a rate-neutral monetary policy stance to persist during the next two policy meetings.
Rate-neutral policy rate is when the Central Bank sets a monetary policy rate that neither stimulates nor restrains the economy.
Looking forward, GCB Capital Research suggests a potential pivot in monetary policy in the first quarter of 2024 if the disinflation process gains momentum as projected through the fourth quarter of 2023. It is noted that a substantial decline in headline inflation in September 2023 could contribute to narrowing negative real returns and resetting interest rate expectations downward.
GCB Capital Research underscores the current inflationary challenges while expressing optimism that ongoing reforms will facilitate the disinflation process in the future, with a potential shift in monetary policy anticipated in early 2024 if disinflationary trends materialize as expected.
Ghana’s headline inflation for August reversed course, easing to 40.1% y/y (-3% from July). The outturn is the lowest inflation print thus far in 2023, with the sharp slowdown in August inflation erasing the increases recorded since May 23.
Inflation from the food and non-food baskets recorded sharp declines from the Jul-23 print, while the month-on-month numbers show deflation across the food, non-food and overall inflation prints in Aug-23.
Inflation from the food and non-alcoholic beverages basket declined for the first time in five (5) months, easing to 51.9% y/y (-3.1% vs Jul-23) and recorded a deflation of 0.3% m/m. Non-food inflation recorded a sharper decline in August, at 30.9% (-2.9% vs. Jul-23).
The non-food basket also recorded a 0.2% m/m deflation in August, resulting in a deflation on the headline for the August data window. Overall, eight (8) out of thirteen (13) divisions of inflation recorded deflation m/m, headlined by education services (-2.8%).
The inflation print in Aug-23 reflects the decaying lag impact of the revenue and tariff adjustments and the effect of the main crop harvest season on food prices. Eleven (11) out of the fifteen (15) sub-classes of the food basket recorded lower inflation rates on a y/y basis and deflation on a m/m basis.
Oil and fats (-2.3%), tea and related products (-1.9%), sugar confectionaries (-1.2%), vegetables and tubers (-1.1%) and cereals (-1%) were the five items with the highest rates of deflation m/m. The food and non-alcoholic beverages division still dominates, accounting for 22.09% of the 40.1% overall inflation print.
