Inflation Ends First Half of the Year at 5.3%

Ghana’s disinflationary path continues to face a major headwind as renewed pressures on consumer prices threaten to unwind gains made. After inflation reached its lowest point in recent times in March at 3.2%, it’s been on a steady upward trajectory, closing the first half of the year at 5.3%, its highest since December last year. The climb in June’s inflation reading is the steepest so far since inflation began to pick up, edging up by 1.6 percentage points from 3.7% in May. Month-on-month inflation reading, on the other hand, showed a modest pick-up in the prices of consumer goods and services in June as inflation was reported at 0.2%, the lowest in the second quarter of the year, down from a reported figure of 1.1% in the previous month.

The pick-up in June’s headline inflation rate was largely skewed towards non-food and local items despite other key constituents of the inflation basket such as food, goods and services also contributing towards the rise. The mild shock to Ghana’s inflation outlook, which has persistently prevailed far below the central bank’s medium-term inflation target band, was set off by the US-Iran conflict, which led to a sharp rise in international crude oil prices whilst also disrupting some supply chains. However, following progress made in peace dialogue between the two warring sides, it is expected that Ghana’s inflation outlook will begin to see some stability, barring any continuous increase in some selected food items.

Food inflation rose for the second consecutive time to print at 3.9% in June, up from 3.3% in the previous month as some food items stricken by limited supply continuously record sharp increases in their prices. According to data released by the statistical office, nine out of the top ten items with the highest inflation numbers were food items, with Ginger leading with a 102.5% inflation rate. Month-on-month food inflation printed at 0.1% in June, compared to a figure of 2.0% in May, as a significant number of sub-group items in this inflation basket recorded price decreases.

The non-food inflation basket, which contributed 68.5% to the headline inflation rate, rose sharply to 6.3% in June, its highest in more than six months, up from 4.1% in the previous month. A key component of this sub-group, Transport, which has been on a sustained deflationary path, recorded its first positive inflation rate over the past twelve months at 9.1%, whilst several subgroup items also recorded increases in their yearly inflation readings. Month-on-month non-food inflation remained unchanged at 0.4%, buoyed by a mixed bag of price increases and decreases.

Across the regions, the inflation rate ranged from -4.4% in the Bono region to 10.2% in the North East region, with six regions recording inflation rates above the national average. Inflation on both local and imported items saw increases, up from 5.0% and 0.9% in May to print at 6.7% and 2.3% in June, respectively. Inflation on goods and service categories recorded diverging movements, as inflation on goods moved from 1.4% in May to 3.7% in June, whilst that on services declined from 9.9% to 9.4% over the same period.

The July sitting of the central bank’s Monetary Policy Committee (MPC) is expected to see the committee remain glued to its cautious stance after it stalled the policy rate at its last meeting following the emergence of risks to the inflation outlook. With inflation seeing an additional increase after the last MPC meeting, it is widely expected that the committee will hold the prime rate yet again whilst the MPC re-examines the path of the inflation outlook.