Inflation to remain high until Q2 2025 – BoG asserts
The global economy is facing a slew of challenges as it grapples with the impacts of the Covid-19 pandemic, and the Bank of Ghana’s recent monetary policy report underscores the ongoing struggles faced by the West African nation.
According to the BoG, inflation in Ghana is expected to peak in the first quarter of 2023, before gradually easing thereafter. However, the bank has projected that headline inflation will remain above the upper band of 8±2 percent until the second half of 2025, indicating that inflationary pressures are expected to persist for some time.
This is a worrying trend for the central bank, which has been grappling with the challenge of balancing the need to support economic growth with the need to keep inflation under control. The bank’s decision to keep the policy rate high in its January 2023 Monetary Policy Report was driven by the significant upside risks to the inflation outlook, highlighting the challenges faced by policymakers in balancing these competing demands.
The report noted that the continuous monetary policy tightening and the relative stability in the exchange rate in December 2022 led to some moderation in the pace of monthly price acceleration. However, the underlying inflationary pressures remain broadened and could be reinforced by additional shocks in the near-term with the announcement of new revenue measures in the 2023 Budget, additional exchange rate pressures, and upward adjustments in utilities and ex-pump prices.
Despite these challenges, there are some signs of hope on the horizon. The bank’s survey of consumers, businesses, and the financial sector showed that inflation expectations eased in December 2022, indicating that agents’ expectations of moderation in inflationary pressures are on the rise.
Moreover, monthly inflation started to decline from 8.6% in November to 3.8% in December 2022, reflecting a slowdown in the rate of increase in inflation. Month-on-month food inflation also decelerated from 10.4% to 4.1%, while non-food monthly inflation also slowed from 7.2% to 3.6% over the same comparative period. These figures suggest that the Bank of Ghana’s efforts to rein in inflation are beginning to bear fruit.
Nevertheless, the challenges facing the Ghanaian economy are likely to persist for some time. The ongoing Covid-19 pandemic continues to pose a significant threat to the global economy, and Ghana is no exception. With the Bank of Ghana projecting that inflation will remain above the upper band of 8±2 percent until the second half of 2025, it is clear that policymakers will need to remain vigilant in their efforts to support economic growth while keeping inflation under control.
