Disinflation masks deeper fragilities as cedi swings and fiscal gaps sustain price pressures — Joe Jackson
Recent moderation in inflation is concealing underlying structural weaknesses tied to currency volatility, fiscal slippage and limited domestic value retention, says Joe Jackson.
Speaking at the UPSA Dean’s Lecture Series under the theme “Exchange Rate Sustainability and Resource-Backed Stabilization in Ghana: Economic Reforms, Policy Trade-Offs and the Role of GoldBod,” Mr Jackson argued that inflation dynamics in Ghana are less about short-term price movements and more about macroeconomic discipline.
“A volatile cedi is not just an economic problem; it is a discipline problem in disguise,” he said, framing inflation as a symptom of deeper fiscal and monetary imbalances.
Data presented at the lecture show inflation peaked at 54.1% in 2022 before easing to 23.2% in 2023 and 23.8% in 2024, with projections pointing to a sharp decline to 5.4% in 2025. Yet this disinflation path has coincided with pronounced exchange rate instability, as the cedi weakened significantly between 2022 and 2024, amplifying imported inflation pressures across the economy.
Mr Jackson identified three dominant drivers sustaining inflation: persistent fiscal deficits, continued currency depreciation and rising energy and utility tariffs. Together, these forces have entrenched a feedback loop that undermines both price stability and currency confidence.
He outlined how the cycle reinforces itself through elevated domestic prices, reducing the competitiveness of local goods, incentivising imports and widening external imbalances. This, in turn, pushes interest rates higher and erodes returns on cedi-denominated assets, accelerating dollarisation and weakening the currency further.
The contrast with low-inflation economies remains stark. While a 2% inflation environment leads to marginal price increases, Ghana’s double-digit inflation significantly erodes purchasing power, compressing real incomes and diminishing the cedi’s effective value.
Mr Jackson stressed that without firm control of inflation, gains from initiatives aimed at boosting export earnings and foreign exchange retention risk being neutralised.
“Unless inflation is controlled, any gains from increased export value retention will be eroded,” he noted.
The lecture concluded that restoring durable price stability will require tighter fiscal discipline, greater exchange rate stability and structural reforms focused on retaining more value within the domestic economy, a combination Mr Jackson suggested remains central to rebuilding confidence in the cedi.
