Food price pressures pose challenge to Ghana’s disinflation process
Food price pressures according to research lead at GCB Capital, Courage Boti, poses as a near-term upside risk to inflation which could moderate the pace of disinflation.
Touching on the recent uptick in headline inflation by 30bps to 42.5% in June in GCB Capital’s Policy Insight to investors, Mr Boti asserted that while the disinflation process could resume in July, the country’s food basket remains a significant source of price pressure.
According to him, food prices appear to be sticky as their seasonality effects and unfavourable pricing dynamics keep food inflation elevated and above the national average.
“While we expected the waning lagged impact of the revenue and utility tariff measures and the favourable base effects to reset inflation on the downward path from Jul-23 and reinforce low inflation expectations, all things being equal, we flag the simmering food price pressures as a near-term upside risk to inflation, which could moderate the pace of disinflation,” he quipped.
Mr Boti however noted that unlike the food inflation, the contribution of non-food inflation to overall inflation continues to decline as disaggregated data shows inflation is easing across a number of non-food divisions.
“While the personal care & miscellaneous goods, furnishing & household equipment, housing & utilities and the alcoholic beverages & narcotics divisions continue to record inflation rates higher than the national average, the disaggregated data shows inflation is easing across these divisions. Their contribution to the overall inflation print is also continuously declining, underscoring the continued decline in non-food inflation,” he pointed out.
Ghana’s year-on-year headline inflation climbed for the second consecutive month since May 2023, rising by 30bps to 42.5% y/y in June 2023. The June 2023 inflation print continues the reversal in the inflation trend, albeit at a moderated pace, after four consecutive months of disinflation from the start of 2023.
While the lagged impact of recent utility tariff adjustments and the implementation of the revenue measures are expected to decay over time, they remain pronounced in the time being, as reflected in the 5.7 points increase in the CPI index for June 2023.
However, the drag factors on inflation – including a favourable base pull, relative Cedi resilience as well as easing petroleum prices and their pass-through effects to transport fares and general prices, continue to moderate the impact of the push factors, which we believe, underscores the marginal increase in inflation for June 2023.
The disaggregated numbers show that food inflation remains elevated, increasing by 240bps (from May 2023) to 54.2% in June 2023. However, non-food inflation continued to decline, easing to 33.4% y/y (-120bps from May-23), which sustained the widening disparity between the weightier non-food inflation basket and the more price-inelastic food basket.
However, we recorded a reversal in the month-on-month (m/m) inflation trend for the first time in three (3) months across the headline, food and non-food baskets. The m/m headline, food and non-food inflation prints eased to 3.2% (-1.2% from May-23), 3.9% (-2.3% from May-23), and 2.6% (-0.9% from May-23), respectively, departing from the uptick in m/m inflation that followed the deflation in March 2023.
