Utility tariffs hikes push inflation to 9.4%

Consumer inflation, as measured by the Consumer Price Index (CPI), in July 2019 rose by 30 basis point (bps) to 9.4 percent from 9.1 percent in the previous month on the back of higher utility tariffs. This is expected to persuade investors to demand marginally higher yields on short term debt securities issuances over the coming weeks, at least until the inflationary effects of the recent utility tariff hikes are played out.

According to the Ghana Statistical Service, the Housing, Water, Electricity, Gas and Others Fuels sub-group – of which public utility tariffs are the primary component – which forms part of the Non-Food group, recorded the highest upsurge of 3.1 percentage points, in the inflation rate for July 2019.

Effective July 1, 2019, the Public Utilities Regulatory Commission (PURC) announced eight percent and 11 percent rises in water and power tariffs and LPG gas prices, respectively. PURC attributed the hike in utility tariffs to the depreciation of the Ghanaian Cedi against the US Dollar and higher fuel prices; diesel is the primary feedstock for power generation.

The Non-food group was the larger contributor to the July 2019 inflation rate as its inflation rate rose by 0.4 percentage points to 10.7 percent in July 2019 from 10.3 percent in June 2019.

The Food group contributed just 0.1 percentage point to the rise in the rate of inflation in July 2019.

The consumer price index (CPI) measures the change over time in the general price level of goods and services that households acquire for the purpose of consumption.

Notwithstanding the marginal rise in inflation, the key economic indicator is still within the central bank’s medium term target band of 8±2 percent.

Market analysts note that once the effect of the higher tariffs on inflation dwindle, the central bank may seek to ease monetary policy further. Indeed, BoG Governor Dr Ernest Addison has repeatedly assured that the Bank’s measure of core inflation – which excludes potentially volatile utility and fuel prices – is relatively low.

The central bank left the benchmark policy rate unchanged at 16 percent last month, citing threats to ongoing fiscal consolidation arising from higher public spending and lower-than-expected public revenue generation in the first half of 2019.

Investors are likely to seek higher yields in the treasury market in a bid to cushion the adverse impact of the 30bps rise in inflation in real returns. The

yields on the 91-day and 182-day bills remained flat at 14.73 percent and 15.17 percent respectively this week while that of the 1-year note rose marginally by 1bps to 17.91 percent this week against 17.90 percent last week.

Regional Performance

Five regions (Upper West, Brong-Ahafo, Western, Volta and Ashanti) recorded inflation rates above the national average of 9.4 percent.

Upper West region recorded the highest year-on-year inflation rate of 11.1 percent, followed by Brong Ahafo region with 10.8 percent. Upper East region recorded the lowest year-on-year inflation rate at 8.5 percent in July 2019.