RMB dampens single-digit inflation hopes

December 23, 2016
Source: Norvan Acquah-Hayford |thebftonline |Ghana
RMB dampens single-digit inflation hopes

South-African-based research firm, RMB Global Markets Research has projected that Ghana will continue to miss its target of a single-digit inflation until 2019 when fiscal and monetary policies could bring inflation down to the eight percent band.

The projection on inflation, which falls in line with the government’s medium-term target band of 8±2 percent, comes at a time that inflation pressures have began to ease to record its lowest rate of 15.5% in 29 months.

The last time Ghana recorded a single digit inflation was in June 2010 when inflation, measured by the Consumer Price Index receded to 9.52 percent.

According to the latest RMB outlook report on the economy, Ghana’s inflation rate, which currently stands at 15.5 percent as at the end of November this year, is likely to see continues fall to 13 percent in 2017- the lowest since Oct 2013 when inflation reached 13.1 percent.

“Inflation is not expected to reach the government’s medium – term target of 8±2 until 2019. However, the Bank of Ghana (BOG) is satisfied with the extent of its monetary policy tightening, and is therefore comfortable with starting the cutting cycle. In combination with sustained fiscal consolidation and lower GDP growth, this stance should slow the pace of inflation by 2017, as opposed to the initial expectation of quarter three of 2017.”

The South African firm in its outlook for 2017 predicts that the base effects should be more pronounced next year; on condition that food inflation is contained with the cedi also remaining relatively stable, then inflation will average at a rate of 13%.

“Base effects should be more pronounced in 2017, provided that food inflation is contained and the cedi remains relatively stable. We forecast an average rate of 13% in 2017 as the pace of decline will be restrained by higher oil prices. With continued fiscal consolidation, inflation will come down further in 2018 to 10.5 and ease into its target range in 2019,” the forecast stated.

Inflation management this year has yielded chequered results as the opening inflation of 19 percent peaked at 19.2 percent in March- the highest in almost five years. The rate of inflation, however, started its descend in May, recording 16.7% in July but rose again to 17.2% in September before it begun to fall continuously again, reaching 15.5% in November 2016.

The research firm added that the highest risk to the outlook for Ghana on inflation is the higher food prices, which has the largest weighting on the CPI basket.

The forecast according to some economist come as good news to the business community who have over the years have had to battle with high cost of credit which has proved detrimental to businesses’ expansion plans, increasing unemployment as well as led to the collapse of others.

Commenting on the forecast, a Senior Lecturer at the University of Ghana Dr. Ebo Turkson said the inflation targets are dependent on ramping up energy supply to stem power supply crisis to enable businesses to run smoothly.

 “When it comes to bringing down inflation to single digit in 2019, it is possible because Treasury bill rate has begun to decline which means interest rates will also begin to decline and all things being equal, cost of production will decline which will see inflation decline at the end.”

“But in the situation where we are not able to solve the energy crises and the world oil prices keep on increasing to the point that they were earlier in 2014, then you will expect that the fuel price adjustment would feed into inflation, the cost of production and interest rates. In those scenario then you expect that we cannot be able to meet the single digit inflation as is being projected in 2019,” he added.