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Home Business Banking & Finance

Limiting inflation control to monetary policy rate wrong – Dr Adu Sarkodie

3 years ago
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Limiting inflation control to monetary policy rate wrong – Dr Adu Sarkodie

Economics Lecturer with the University of Ghana (UG), Dr Adu Owusu Sarkodie, has said it is wrong for the monetary policy rate to be used as the only tool in controlling inflation in the country.

According to him, to effectively control inflation, monetary policy (the policy rate) by the Central Bank should be complemented by fiscal policy (implemented by the government through the Finance Ministry).

He is of the view that, should government fail to implement fiscal policies aimed at helping reduce inflation in the economy, monetary policies such as the policy rate will continue to fail at driving down inflation, especially when the recorded increments in the inflation rate is mainly as a result of food inflation.

“The fight against inflation should not be limited to monetary policy rate only, because food inflation which is mainly driving headline inflation is from the agric sector, a real sector which the government has control over and not the Central Bank.

“And that is why just using the policy rate to control inflation has not been working, but in fairness to the Central Bank, that is the only available tool they can use to help control inflation,” he stated.

Speaking further he said, “The policy rate will only be effective when inflation is demand driven, but in our part of the world its supply driven, because its the cost of producing these items that is causing inflation and not more money chasing after fewer goods as we usually know to be the case.”

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Headline inflation rate for the month April 2022 was 23.6%

Compared to that of the previous month, headline inflation is 4.2 percentage points higher than the 19.4% recorded in March 2022.

The month-on-month inflation between March 2022 and April 2022 was 5.1%.

Four divisions (Transport, Household Equipment and Routine Maintenance, Food and Non-Alcoholic Beverages, and Housing, Water, Electricity, Gas and Other Fuels) recorded inflation rates above the national average of 23.6% with Transport (33.5% ) recording the highest inflation for the inflation rates of all divisions).

Regional inflation

At the regional level, the overall year-on-year inflation ranged from 18.4% in the Upper East Region to 26.7% in the Central Region.

Central Region again recorded the highest month-on-month inflation (8.8%).

All regions recorded positive month-on-month inflation rate in April 2022 (above 2.0%).

Food and non-food inflation

This month’s food inflation (26.6%) is higher than both last month food inflation (22.4%) and the average of the previous 12 months (13.5%).

Food inflation’s contribution to total inflation, however, decreased from 51.4% in March 2022 to 50.0% in April 2022.

Overall month-on-month food inflation was 5.8%, which is higher than both the twelve month national month-on-month rolling average of food inflation (2.0%) and the rate recorded for April 2021 (2.3%).

All the 15 food subclasses recorded positive month-on-month inflation with Fruit and Vegetable Juices recording the highest (15.3%).

Non-food year-on-year inflation on average went up again in April 2022 compared to March 2022 (from 17.0% to 21.3%).

Only one out of the 12 non-food divisions had the 12 months rolling average to be higher than the year-on-year inflation for April 2022 for the divisions.

Transport is the division that recorded the highest inflation in April 2022 (33.5%).

Imported and local inflation

The inflation for imported goods was 24.7% (which is higher than the 17.3% recorded for March 2022) while the inflation for locally produced items was 23.0% (up from the 20.0% recorded in March 2022).

Source: norvanreports
Tags: Bank of Ghana (BoG)Limiting inflation control to monetary policy rate wrong – Dr Adu Sarkodie
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