Is a single digit inflation elusive?

Story: Boahene Asamoah

RECENT global events have cast dark shadows across the world economy, leaving fragile economies like Ghana with little options as to what to do.
The soaring oil and food prices on the world market have caused considerable effects to espeically develolping economies.
Allthough the country is yet to experience the full magnutiude of the problem, the effect at its initial impact has led to upward increase in the consumer price index.
The Consumer Price Index (CPI), which measures the rate of price increases over time has for the past five months been increasing, threatening the country’s fragile macro-economic stability.
The upward surge in the inflation rate while it may derail government monetary policies also put the country in a weaker position with regards to the West African Monetary Union.
From 12.81 per cent recorded in January, inflation for June now stands at 18.41 per cent, and indications are that that trend was likely to remain high.
Interestingly, inflation has since November last year, been on the rise.
A combination of both the non-food and food components of the CPI have accounted for the upward movement of inflation.
The current situation although expected, the magnitude of the rise in the inflation rate is a source of concern.
This outlook of the economy, among many others has made the Central to even review its prime rate upwards, with the spirall effect of interest rate hikes from the commercial banks, and the resultant high cost of doing business in the country.
Whiles, the floods that hit the country last year was expected to have an impact on the inflation with respect to the food component of the index, the same can be said of the non-food component, a major part of which has been the sky rocketing prices of crude oil on the international market and the resultant increases in fuel prices in the country.
Crude price has risen to record highs hitting $145 million per barrel and analyst expect the oil price to hit yet another record highs of about $200 million per barrel by the close of the year.
The government has indicated that its oil import bill is currently hovering around $2.5 billion for the same quantity of 60,000 barrels of oil it imports annually.
This has threatened the country’s import cover which was reported to have declined from three and half months of import cover to about 2 months of external reserves.
On the back of the weaken dollar, it remains to be seen how the government can manage the soaring oil price bill, given that the government has reduce the petrouleum taxes of petrol products.
Indications are that the privitisation of the Ghana Telecom to Vodacome, which yeilded an amount of about $1.5 billion would be a welcome relief in terms of cash injection to the economy, but how sustainable would this be?
Indeed inflation surge is not perculair to Ghana alone, indeed Nigeria, South Africa and even some developed economies have had to deal with upward increase in inflation as a result of the global crises.
According to the Monetary Policy Commeeting review of the economy, inflation outlook for the second quarter was likely to ramin high on expectations of higher future crude oil prices, which were expected to exert more inflationary pressures on the economy.
In view of the upward increase in inflation from 16.88 points in May to 18.41 points in June, anaylst expect again to see the Bank of Ghana review upwards its prime rate from the present 17 per cent.
Again the second quarter is also associated with the lean season for most food staples when there are food price pressures.
The government mitigation announced in May to absord of the shocks of the global crises are yet to have full impact on food prices especially on imported rice on the local market.
Another issue has got to do with imported inflation. With soaring world prices globally and with the economy driven mainly by imports, imported inflation seems uncontrolable and could account for the rather high inflation figures the country was experiencing.
Again the Public Utilities have announced its intentions to up the tariffs on utilities especially for commercial users. Although some industry expert indicate that the final cost of such increase in utilities would be pass on to the final consumer, indicating that prices of some commodties were expected to up.
With the central bank’s major focus of ensuring price stability as a policy and the effect of the global crises, a single digit inflation seems to remain elusive in the lifetime of this government as the year draws to a close.
Ghana has a commitment to the West African Monetary Union with the yet to be introduced single currency. That position seems to be a mirage considering that one of the four criterium for achieving covergence is a single digit inflation.
Government has also not indicated that it was going to cut back on its social investments such as roads, and other infrastructure. This does not look likely in an election year. All this again indicate that achieve a a single digit inflation does not look likely.
These developments place the country in a tight position and looks unilkely that a single digit inflation remains elusive as we strive to achieve a balance in economic growth and development.







Inflation for February edged up by 0.4 per centage points from 12.81 to 13.21
In that month the high prices of some basic foodstuffs such as fish, bread and cereals were responsible for the surge in inflation rate.
These products contributed 0.89 points and 0.55 points respectively.
Other contributors were vegetables, potatoes and other tuber vegetable groups accounted for 0.38 points and meat group accounted for 0.35 points.
The non-food component of the index contributed 0.85 percentage points to the index with furnishing, household equipment and routine maintenance group contributing 0.43 points.
Other contributors for the February inflation were clothing and footwear which accounted for 0.34 points to that sector.


The March inflation hit 13.79 per cent, representing an increase of 0.58 percentage points over that of February .
The rise in the rate of inflation for March was partly to high food prices, which contributed 5.85 points, while the non-food group contributed 7.94 points to the rate of inflation.
The high prices of some basic foodstuffs such as cereals, bread and fish were mainly responsible for the surge.
Information from the Ghana Stattiscal Service the increases in fuel prices, the upward adjustment in utility bills and the supply of money in the system were some of the contributory factors to the increase in the rate of inflation.
Again the officials cited the shift from local to exotic food, also contributed to the rise in inflation with its attendant .
The month of march was one of the major planting months and so during that month the demand for foodstuffs outweighed supply, making the subsequent price hikes to usually pull the rate of inflation higher, compared to the other months.
This was expected with the reason that by the middle of the year, prices for food prices would ease
It was expected that the rate of inflation would ease by the end of the March because of
In April however, prices increased sharply with most of the increase being accounted for by non-food inflation. Food prices increased jumped from marginally by 0.2 per cent point to 13.2 per cent, non-food prices jumped from 14.4 per cent to 16.9 per cent.
By April 2008m petrouleum prices had increased by 15.8 per cent which led a increase in transportation cost by the end of April

The April rate closed at 15.8 per cent in April.

Comparing the innflation trend for 2007, the year started with an inflation rate of 10.89 per cent in January, falling to 10.42 and 10.19 per cent in February and March, respectively.
However, the rate of inflation rose in April and May to 10.5 and 11 per cent, respectively, declining in June to 10.7 per cent and 10.1 per cent in July, dropping by 0.3 and 0.6 percentage points, respectively.
The rate of inflation for August rose by 0.3 percentage points but fell in September to 10.19 per cent, due mainly to increases in fuel prices and transportation fares.
In October, a reduction in the price of petroleum products pulled the rate of inflation marginally downwards by 0.1 percentage points, while the upward adjustment in the prices of utilities and petroleum products contributed to the high inflation of 11.40 per cent and 12.75 per cent in November and December, respectively.

THE rate of inflation rose by 1.59 per cent to close the month of May at 16.9 per cent in May, the Ghana Statistical Service (GSS) has said.
The major movers of the index was due to higher costs of transport and food items
The 1.6 per cent change from April to May indicated that consumer prices in the country were continuing to feel the pressure of higher global fuel and food prices.
Overall, food items, mostly fish, bread and cereals, contributed 7.2 per cent to the monthly increase.
Non-food items, including transport, contributed 9.7 per cent.
Ghana's consumer prices maintained their upward march despite the Bank of Ghana's decision last month to raise its prime interest rate by a bigger-than-expected 175 basis points to 16 per cent to try to control inflation.
It is the intension of government to bring inflation to a single digit by the close of the year. However, with geopolitical events coupled with the crude oil prices, it is impossible to bring inflation to a single digit by the close of the year.
Since January this year the rate of inflation has been rising steadily. At the beinging of the year the rate stood at 12.8 per cent and closed at 13.2 per cent by the end of February rising again in March to settle at 13.8 per cent.


Inflation (Finance) Read by E. agyeI