Inflation Rate Closes 2021 at 12.6%

Persistent upward price pressures drove the inflation rate in December to its highest in more than four years as the local economy continues to heat up following a return to normalcy in most economic activities. After touching a multi-year low in May at 7.5%, consumer prices have been on a steady rise throughout the second half of the year. A stronger pick-up in economic activities as the year wrapped up, lifted the inflation rate from 12.2% in November to 12.6% in December.

December’s inflation rate thus beats the government’s year-end inflation target of 10% as a sharp rise in crude oil prices on the international market, the depreciation of the local unit, and fiscal slippages contributed significantly to the reversal of a deflationary trend as witnessed in the first half of the year. Inflation over the past four months has firmed in the double digits beating the Bank of Ghana’s (BoG) medium-term inflation target band. Pressures on consumer goods are expected to persist beyond 2021 on the back of a continuous rise in the prices of petroleum products and foodstuff, and the introduction of new tax regimes.

Food inflation in December surprisingly declined from 13.1% in November to 12.8% as its overall contribution to the national inflation dipped from 47.7% last month to 45.2% in the current month. This was after some key sub-group items such as vegetables, tubers & plantain, milk & dairy products, and coffee & coffee substitutes printed slower rates from last month.

In line with expectations, the inflation rate on non-food and alcoholic beverages surged from 11.6% in November to 12.5% in December, the highest rate recorded for 2021. The inflation rate in this group was widely led by Housing, water, electricity, gas & other fuels at 20.7% and transport at 17.6%. Restaurants and accommodation services recorded the biggest month-on-month jump at 4.47%.

Across the regions, the inflation rate ranged from 7.4% in the Eastern region to 18.6% in the Upper West region. Inflation on both local and imported goods recorded an uptick from last month with the inflation rate climbing from 13.0% and 9.8% in November to 13.3% and 10.4% in December respectively.

2022 will be a tougher year for the Monetary Policy Committee of the BoG as there seem to be no end in sight in the ongoing inflationary trajectory. Rates on medium to long-term Treasury securities have already begun to see increases. The MPC thus faces the dilemma of how long it can keep on stalling the policy rate.