Ghana’s inflation rate to remain above 50% in 2023 – World Bank projects

Ghana’s inflation rate to remain above 50% in 2023 – World Bank projects

According to the World Bank’s April 2023 Africa Pulse Report, inflation in Ghana, Uganda, and Burundi is expected to accelerate by more than 3 percentage points in 2023 from last year, which means inflation will stay above 50% this year. This represents a worrisome development for policymakers and investors alike, as it signals that these economies are struggling to contain the impact of rising prices on their respective populations.

While the rate of inflation is expected to have peaked for most countries in the region, it is not the same for Ghana and the two other countries. This underscores the uneven nature of the economic recovery in Sub-Saharan Africa, which has been hampered by a range of factors, including structural constraints, political instability, and the lingering effects of the Covid-19 pandemic.

Moreover, the World Bank report highlights that about 70% of the countries in the region are expected to have a lower inflation rate in 2023 compared with that in 2022. This is a positive development, as it suggests that some countries are making progress in containing inflationary pressures and restoring macroeconomic stability.

However, the rates of consumer price growth are still high, above target, and above pre-pandemic levels. This indicates that inflationary pressures remain a major challenge for many countries in the region, particularly those that are heavily dependent on imports or have weak domestic supply chains.

The rate of inflation in three countries in the region is expected to accelerate by more than 3 percentage points in 2023 from last year, namely, Ghana, Uganda, and Burundi. This is a cause for concern, as it suggests that these countries are struggling to implement effective policies to address inflation and restore macroeconomic stability.

Moreover, the World Bank report notes that cross-country differences in the evolution of external and fiscal balances, as well as debt dynamics, are also present in countries’ inflation rates. This underscores the need for policymakers to adopt a nuanced approach to tackling inflationary pressures, taking into account the specific macroeconomic conditions and structural constraints in each country.

The report also highlights that about 75% of the countries in the region registered double-digit year-over-year inflation rates at the end of 2022, with the fastest increases experienced in Zimbabwe, Sudan, Ghana, Rwanda, Sierra Leone, Burundi, Malawi, and Ethiopia. This is a worrying trend, as high inflation rates can erode people’s incomes and undermine food security, potentially leading to social unrest and conflict.

Domestic food inflation in Africa has remained sticky in some African countries while it has decelerated in others, although at a much slower pace than the disinflation of food prices in global markets. This might be attributed to currency depreciation, as countries in the region import most of their food staples, as well as high input costs (high oil and natural gas prices affecting transportation and refrigeration, and nitrogenous fertilizers) and extreme weather events (for instance, droughts in the Horn of Africa).

The World Bank emphasized that bringing down inflation and anchoring inflation expectations should continue to be a priority for policymakers, to prevent further deterioration of people’s incomes and food security and avert social unrest and conflict. This will require a comprehensive approach that includes structural reforms to boost domestic supply chains, fiscal consolidation to address external imbalances, and targeted policies to mitigate the impact of global supply chain disruptions and extreme weather events.