Head of Research at GBC Capital, Courage Boti, has described the recent surge in inflation in March as “not surprising” and assures that it does not pose a significant threat to the ongoing trend of disinflation.
Data from the Ghana Statistical Services (GSS) indicates that consumer inflation soared to 25.8 percent in March 2024, the highest level since November of the previous year.
This increase, up from 23.2 percent in February 2024, is attributed largely to base drift effects resulting from a sharp price decline in March 2023.
Despite the uptick, Mr Boti remains unfazed, stating, “It is an increase but I am not surprised. My expectation was 26 percent. Will this be a trend that continues? Admittedly, there are upside risks to inflation, but from April we should begin to see a return to the path of disinflation. The exchange rate, petroleum price and impending transportation price hikes will serve to moderate the pace of disinflation but we expect that without any significant shocks. The general trend is that there will be a continuous decline in inflation”.
He anticipates a return to the disinflation path from April onwards, citing factors such as exchange rate stability, petroleum price moderation, and anticipated transportation price adjustments.
Boti projects that inflation will close the year at under 20 percent, attributing this to factors such as adherence to fiscal discipline under the International Monetary Fund (IMF) program and a potential decrease in liquidity and Treasury bill yields due to recent cash reserve requirements by the Bank of Ghana.
Government Statistician, Professor Samuel Kobbina Annim, while acknowledging the broad-based nature of the inflation surge, particularly in food prices, emphasizes that the increase cannot solely be attributed to imported food.
Both food and non-food prices experienced a 2.6 percentage point increase in March, indicating widespread inflationary pressures.
Market analysts had anticipated the rise in inflation, citing ongoing cedi weakness and recent hikes in ex-pump petroleum prices as contributing factors. Despite this, the month-on-month inflation rate declined from 1.6 percent in February to 0.8 percent in March, suggesting potential easing of underlying inflationary pressures.
GCB Capital maintains its end-2024 inflation forecast at 16.5 percent ±1 percent, expecting the disinflation trend to resume from April 2024.
“If you look at the food that is imported, out of the 176 items that recorded price changes higher than 25.8 percent, we had 15.9 percent of the food that is imported relative to food that is local, which constituted 23.3 percent.
“So one cannot argue that imported food is driving the 29.6 percent that we are seeing in March 2024, because we are equally seeing that local food constituted about 41 of the 176 items that recorded price changes higher than 25.8 percent,” he said.
“What is coming to us for the first time in a while is a division like health that hitherto we would hardly find it as a division that will record a rate of inflation higher than the overall rate of inflation,” Prof. Annim observed.
“But we are now seeing health coming up as one of the six divisions that are pointing to the higher rate of inflation.”
“We, however, flag the simmering cedi depreciation amid immediate liquidity concerns and its potential pass through to ex-pump fuel prices in the wake of the lingering crude oil supply concerns due to geopolitics as an immediate upside risk to inflation through the transport channel and general market prices,” said GCB Capital in its March review of the inflation data.
“What we need to pay emphasis, what we need to pay attention to is year-on-year and month-on-month inflation moving in different directions as we rightly saw for the second time; we are seeing a dip in month-on-month inflation,” Prof. Annim explained.
“All this would have implications in the coming months in terms of how the month-on-month inflation would feed into the year-on-year inflation.”
The data revealed that both food and non-food prices saw a 2.6 percentage point increase in March, suggesting broad-based inflationary pressures. Notably, the health sector emerged as one of the six divisions recording inflation rates higher than the national average.
However, analysts remain cautious about potential fiscal overruns leading up to the 2024 election, which could pose an upside risk to inflation in the latter part of the year.