Lingering inflationary pressures foreseen amidst food price concerns
In a comprehensive assessment of the country’s headline inflation for July, GCB Capital Research unveils a nuanced outlook, indicating that the simmering inflationary pressures are poised to endure, largely attributed to the persistently high Food inflation. This concern looms large as the primary risk to the broader inflation landscape.
Highlighting a significant trend, the analysis reveals that the contribution of the food basket to the overall inflation rate has maintained an average share of 55% since November 2023, consistently surpassing the national average.
While the imminent main crop harvest season holds potential for tempering price pressures arising from the food sector over the next two inflation evaluation periods, the report cautions against potential secondary effects emanating from the surging food prices observed since May 2023. Moreover, the proposed quarterly adjustments in utility tariffs introduce an additional layer of inflationary risk.
Employing simulations, GCB Capital Research presents a pivotal projection: a potential acceleration in the pace of inflation in August 2023, contingent on the reception of the projected price boost expected from the 2023 main crop harvest season.
For the third consecutive month since May-23, Ghana’s year-on-year headline inflation increased by 60bps from Jun-23 to 43.1% y/y in Jul-2023, sustaining the simmering underlying inflation pressures.
Food inflation continued higher, climbing to 55% y/y in Jul-23 (+80bps from Jun-23), with the food and non-alcoholic beverages division alone contributing 54.5% to the July-23 overall inflation print. Four sub-classes of the food basket, comprising vegetables, readymade foods, cereals, and fish & sea foods, with a combined weight of 32.9% recorded average inflation rates of 52.10% in Jul-23, remaining the main drivers of inflation from the basket.
Non-food inflation, on the other hand, changed course for the first time in eight (8) months, creeping 40bps higher to 33.8%. On a month-on-month basis, the inflation outturn was mixed. Whereas the overall and non-food inflation reversed course after just one month of decline and increased by 40bps and 80bps to 3.6% and 3.4%, respectively, food inflation inched 10bps lower to 3.8%, reflecting the contrasting forces underlying the run of inflation.
The July 2023 inflation numbers justify the Monetary Policy Committee’s decision to raise the policy rate by 50bps to 30% following a slightly higher elevated profile, which the committee fears could become embedded in
underlying inflationary pressures. The resurgent food price pressures, its lagged impact, and the lagged effects of the revenue measures and tariff adjustments underpin the simmering price pressures despite the relative stability from the cost-push drivers of inflation.
