Inflation to rise in June amidst revenue and utility tariff measures
As the global economy grapples with various inflationary pressures, Ghana is experiencing a renewed uptick in inflation for June. The implementation of revenue measures and utility tariff increases has reintroduced price risks, reversing the previous disinflation trend witnessed in the first half of 2023.
While factors such as easing global energy prices, the relative resilience of the Cedi, and favorable base effects contributed to a period of disinflation, May 2023 saw inflation inching higher due to the pass-through effects of new levies and utility tariff adjustments on general prices.
During the first half of the year, inflation eased from its peak of 54.1% in December 2022 to 41.2% in April 2023. However, it ticked up by 100 basis points in May, signaling a reversal of the downward trajectory. As Ghana awaits the release of the June 2023 inflation figures later this week, it is anticipated that the first and second-round effects of the revenue measures will push headline inflation even higher. Moreover, the persistent increase in food prices is expected to contribute to the overall inflationary pressures.
The significant rise in electricity tariffs by over 47% in the first half of 2022, coupled with the introduction of new revenue measures, has elevated near-term inflation expectations. This trajectory is anticipated to continue in June and potentially extend into July 2023.
However, as we look beyond July, and assuming no additional revenue-enhancing measures are introduced during the mid-year budget review, the tariff and revenue-induced inflation expectations are expected to subside, leading to a downward reset of headline inflation.
Consequently, given the prevailing inflation risks, macroeconomic uncertainty, and deteriorating market sentiment associated with the imminent rollout of the second phase of the Debt and Deficit Exchange Program (DDEP) by the Treasury, yields are expected to remain elevated in the near term.
The impact of revenue and utility tariff measures on inflation underscores the challenges faced by Ghana in managing price stability while pursuing fiscal sustainability. As the economy navigates these headwinds, it remains crucial to strike a balance between revenue generation and the potential impact on inflationary pressures, all while maintaining market confidence and stability.
