Non-food prices keep inflation outside target band again

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Inflation exceeds BoG’s target, hits 10.6% in September
Prof. Samuel Annim--Government Statistician
  • Records 10.3% in March

The average price of goods and services has, for the second straight time, increased by 10.3 percent in March 2021, as the non-food basket saw an uptick in inflation whereas the food basket saw an appreciable decline – making it the lowest recorded in over a year.

Food inflation recorded 10.8 percent in March, lower than the previous month’s 12.3 percent and the average of the previous 12 months’ figure of 12.8 percent. This led to a decline in the food basket’s contribution to total inflation to 46.3 percent; the lowest contribution observed since February 2020.

On the other hand, the non-food year-on-year inflation on average went up to 10 percent in March, compared with 8.8 percent the previous month; thus contributing to keeping the national inflation constant at the same rate recorded in February 2021.

The inflation on imported goods was 6.8 percent, marginally up from 6.7 percent the previous month; while the inflation for locally produced items was 11.7 percent, same as the 11.7 percent recorded in February.

At the regional level, the Greater Accra Region maintained the highest rate of inflation, recording 17 percent in March, whereas the Volta Region recorded the lowest rate of 5.3 percent.

The 10.3 percent March 2021 inflation is outside the Bank of Ghana’s target band of 6-10 percent – essentially meaning it will create unfavourable conditions for any possible reduction in the policy rate by the Monetary Policy Committee (MPC).

Last month, the Committee maintained the rate at 14.5 – the sixth straight time it has done so -over heightened inflation risk among others, requiring cautious measures be taken to avoid further hikes in the ensuing months.

“After declining in January 2021, headline inflation rose in February slightly above the upper band of the medium-term target… driven mainly by non-food prices. The Bank’s forecast however remains broadly unchanged, with headline inflation expected to return to the target band in the second quarter of 2021. Risks to inflation in the near-term are broadly balanced, but there are emerging short-term pressures emanating from rising crude oil prices and the direct and secondary price effects of the revenue measures announced in the 2021 budget,” the MPC said.

Target and forecast

Government has targetted inflation to end the year at 8 percent, still within the target band of 6-10 percent.

The Economist Intelligence Unit (EIU) said in its March 2021 report that inflation will moderate in 2021 to 8.1 percent from 9.9 percent in 2020, mainly reflecting still-weak domestic demand. The policy think-tank says it only expects a marginal cut of 50 basis points in the policy rate during mid-year, and even that depends on the direction inflation will take.

“Although we expect a small interest-rate cut in 2021, from 14.5 percent to 14 percent, this is unlikely to happen as early as the March meeting since inflation remains high. A rate-cut is likely mid-year, on the assumption that annual inflation moderates in the coming months,” the EIU March report stated.

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