Cedi depreciation impact minimal on inflation in Feb

…inflation increases to 9.2 percent from 9.0 percent in January

Although the first few months of 2019 have already seen the cedi suffer its worst performance since the middle of the decade against other major trading currencies especially the US dollar, consumer price inflation in February has recorded only a minimal increase against market projections of a sharp rise.

The inflation rate stayed within the central bank’s medium term target band of eight, plus or minus two percent for an 11th consecutive month.

February’s inflation only rose minimally to 9.2 percent, despite accelerated cedi depreciation after it previously dropped from 9.4 percent in December to 9.0 percent in January 2019.

Explaining the latest development, the Acting Government Statistician, David Kombat said, “with the exchange rate, it has an indirect effect on inflation unlike items like fuel and utilities, for instance if the prices of fuel should increase by five percent today, tomorrow you will feel it, unless the Union groups decide not to increase the price as well as in the case of utilities.

The month-on-month (m-o-m) inflation rate for February 2019 was 1.0 percent compared to the 0.9 percent recorded in February 2018.

The Food and non-alcoholic beverages group recorded inflation rate of 8.1 percent. This is 0.1 percentage point higher than the 8.0 percent recorded in January 2019.

Four subgroups of the food and non-alcoholic beverages group recorded inflation rates higher than the group’s average rate of 8.1 percent. The subgroups were coffee, tea and cocoa (11.6 percent), fruits (10.0 percent), mineral water, soft drinks, fruit and vegetable juices (9.9 percent) and meat and meat products (9.1 percent).

The non-food group recorded a year-on-year inflation rate of 9.7 percent in February 2019, compared to the rate of 9.5 percent recorded in January 2019.

Five subgroups of the non-food group recorded year-on-year inflation rates higher than the group’s average rate of 9.7 percent. Clothing and footwear (13.3 percent), recreation and culture (13.2 percent) transport (12.8 percent) furnishing, household equipment and routine maintenance (11.6 percent) and miscellaneous goods and services (10.0 percent).

Inflation was lowest in the housing, water, electricity, gas and others fuels subgroup (2.6 percent).

At the regional level, the inflation rate ranged from 7.9 percent in the Upper East Region to 11.4 percent in Upper West region.

Four regions, Upper West, Brong Ahafo, Western and Ashanti, recorded inflation rates above the national average rate and Volta region recorded the same inflation rate as the national average of 9.2 percent.

Meanwhile Statistics Portal, a highly respected international economic analytical firm is forecasting average inflation of eight percent for both 2019 and 2020, while predicting seven percent for 2021.

This figure could be the lowest recorded since 2012 if there are no major shocks and certain extraneous factors that are capable of inhibiting the disinflation process.

This is part of a three year inflation forecast covering 2019 to 2022 done by Statistics Portal. What makes these projections credible that for 2018, the firm projected 9.47 percent as the average inflation rate for Ghana and the actual out turn was not far off at  9.7 percent.

However there is still plenty of room for error in the forecasts – for instance the possibility of a sharp rise crude oil which is hard to predict because crude oil prices are not only determined by the forces of demand and supply but also political trends and events involving countries producing it, which have the tendency to influence global market prices greatly and which in turn can affect local price levels in Ghana.

However, the forecast is useful for guidance purposes and provides a heads-up for policy making bodies and the business community.

By Joshua W. Amlanu & Dundas Whigham