Two economics lecturers both of the University of Ghana (UG), have expressed varying opinions with regards to the trajectory of inflation in the last month of the year.
Whereas Dr Adu Owusu Sarkodie is of the view that inflation is unlikely to rise during the Christmas season, Dr Lord Mensah asserts otherwise and believes inflation will rise in December.
Inflation rate for September, which is 10.4 per cent, is the second consecutive drop in two months after it decreased from 11.4 per cent in July to 10.5 per cent in August, and according to Dr Owusu Sarkodie although Ghana’s inflation rate usually sees a rise ahead of the Christmas season, things will be different this time round.
Although a huge rise in inflation has been predicted for this year due to distortions in economic activities largely caused by the COVID-19 pandemic and the impending election, Dr Sarkodie told Citi Business News that, these activities will rather stabilize the country’s inflation rate.
We know election is coming on in December and government is going to spend. Christmas is coming and we are to spend. But the year 2020 is very different from the previous years because of COVID-19. COVID-19 has come to cause economic disequilibrium. It means aggregate demand has fallen short of aggregate supply. So when we restore equilibrium, there’ll be no cause for inflation. Now the country is in a disequilibrium meaning that our expenditure has fallen below what has been produced.
So if the government is able to spend to revive the economy, during Christmas, individuals and businesses are able to spend, then there will be no higher inflation. Rather, the expenditure by households, government and firms will help to restore the equilibrium which will not cause inflation. So I am still optimistic that the Christmas and election spending will restore the economy into normalcy, he said.
But in a contradiction to the views of Dr Owusu Sarkodie, Dr Lord Mensah, said aside the impact of COVID-19 which has resulted in an increase in inflation, factors such as the upcoming election and the Christmas season will make it difficult for the country’s inflation rate to go back to how it was before the pandemic.
With the inflation dynamic, once you start drifting getting to the end of the year, it will be difficult to come back. If you look at the seasonal dynamics of inflation, history will tell you that once we are getting to the end of the fourth quarter inflation goes up, because the Christmas activities are there, and now it is also an election year so there will be pressure on the exchange rate, he posited.
He also has casted doubt on Ghana’s ability to achieve its end of year inflation target of 8+/2 percent.
