The general price levels of goods and services for March 2020 has, for the first time in memorable history, stood still for three consecutive months, maintaining the 7.8 percent it recorded for the past two months, Ghana Statistical Service (GSS) data has shown.
This means that inflation has remained unchanged since the beginning of 2020. Details of the figures show that the year-on-year food and non-alcoholic basket recorded a rate of 8.4 percent, 0.5 percentage points higher than that of February – making it the highest food inflation recorded since rebasing in August 2019. This also means food is still the predominant driver of the overall inflation for the past eight months. Main price drivers of this basket were vegetables, fruits and nuts.
On the other hand, the non-food basket also recorded year-on-year inflation of 7.4 percent for March 2020, lower than the 7.7 percent recorded the previous month. Main price drivers in this basket include other transport services, garden products, postal and courier services and narcotics, which all recorded rates above the group’s average.
When it comes to locally produced products and imported items, the former continued to record higher rates compared to the latter. Locally produced products recorded 8.8 percent in March compared to 8.6 percent last month; whereas imported items inflation for March was 5.6 percent, lower than that of February by 0.4 percentage points.
At the regional level, the year-on-year inflation ranged from 9.2 percent in the Volta Region to 3.7 percent in the Upper West Region. Greater Accra recorded its lowest rate of inflation for the month since rebasing of the basket, hitting 8.3 percent.
Why panic buying didn’t affect March rate
Questions have been raised as to why, despite prices of goods and services surging abnormally in March due to panic buying when the public anticipated a lock down as a result of the coronavirus, inflation still maintained the same rate for January and February.
The simple answer is that GSS publish inflation on year-on-year basis. Meaning the inflation for March 2020 is calculated as the relative change in the Consumer Price Index (CPI) between March this year and that of last year, using last year as the reference year. So the panic buying that occurred in March 2020 will rather reflect in the figure for March 2021, by which March 2020 will be the new reference year.
Effect on policy rate
Even though inflation plays a key role in determining policy rate, the February inflation didn’t really affect the Monetary Policy Committee (MPC) of the Bank of Ghana decision to cut the policy rate by 150 basis points in March, against experts’ forecasts that rate will be maintained.
However, the MPC thought it prudent to cut the rate to 14.5 percent in a move to cushion the economy as it envisages GDP growth to be impacted negatively due to the coronavirus pandemic.
A press release from the Bank of Ghana said the decision was made due to the impact the pandemic will have on foreign inflows, tax revenue, among others, as a result of the restrictions on imports and the sharp drop of crude oil prices; and inflation remaining in the target band of 8 to 10 percent.
“On the domestic economy, the Bank’s internal assessment shows that the pandemic could impact Ghana through a number of channels. First, the dampened global demand could significantly impact Ghana’s crude oil export earnings with major implications for foreign inflows and tax revenues.
The latest inflation reading for February 2020 is estimated at 7.8 percent, unchanged from January 2020. The forecast for inflation is expected to remain within the target band for the next quarter. Under these circumstances, the Bank of Ghana’s MPC has decided to lower the Monetary Policy Rate by 150 basis points to 14.5 percent,” the statement stated.