- Rising prices coming from global shocks
Governor of the Bank of Ghana, Dr. Ernest Addison, has denied suggestions and assertions that the current inflation targetting framework – which extends much focus on demand-side factors – is unable to stand the test of time; hence the economy’s inability to absorb global price shocks.
Inflation, as of April 2022, hit 23.6 percent from the 19.4 percent recorded the previous month, sparking anxiety and concerns among the public as they say prices on the market are twice or nearly thrice what they cost a few months ago.
But according to the Governor, the recent price hikes cannot be blamed on the current inflation targeting framework as the tool has proven to very effective in bringing down the rate to reasonable levels – including it falling to a single digit before global events washed all those gains away.
“This is a framework that we adopted sometime in 2002/3. It has served Ghana well. Inflation used to be well above double-digits. Since this inflation targetting framework was put in place, it has helped to drive inflation down. Before the pandemic, inflation was at 7 percent; so I don’t think the issue is so much about the framework that the Bank of Ghana is using,” he said during a meeting with journalists at the Bank’s premises in Accra.
Dr. Addison however acknowledged that there are supply side factors contributing to the abnormal rise in inflation. But he assured that the Monetary Policy Committee (MPC) is focusing on limiting the impact of supply side factors on the consumer.
“We are not denying that there are supply side factors at play. If you look at what is happening on energy prices and you look at what is happening on the food side, these are obviously areas where we need broader efforts to try and manage the impact of food production on our consumer basket. You are aware that the Bank provided seed money for the Ghana Agricultural Incentive Lending Programme (GIRSIL), which in a sense provides some kind of guarantee for banks to help them facilitate lending to the agriculture sector.
“Indeed, for the episode of inflation we are seeing now, a lot of it is coming from the global developments – Russia-Ukraine and its impact on wheat and fertiliser cost, and oil prices; all those external factors are at play. The monetary policy focuses on the second-round effect or the impact of these supply side shocks. So, we think that the inflation targetting framework has been very effective in Ghana,” he said.
Expect situation to ease in 2023
Commenting on when it is likely for consumers to see some reprieve, the Governor said the Bank’s forecast shows inflation may come back to the target band of 6-10 percent next year.
“If you look at our inflation forecast profile, we expect that inflation will get back to our target zone sometime in 2023. This means that you will still see heightened inflation rates between now and then, and the pressure will only fade out gradually. It is a difficult time for all of us. Inflation is a canker; the poorest households are the ones who feel it most. And that is why the MPC has taken the decision to use all the tools that are at our disposal to bring it down,” he said.