Headline inflation is expected to see a downward slide in the coming months, according to projections by several market watchers.
The rate is expected to peak this quarter; however, market watchers are predicting a bullish forecast that 2023 could end with a consumer inflation rate of 19.5 percent versus the 54.1 percent recorded at the close of 2022.
Consumer inflation decelerated marginally to 53.6 percent on a year-on-year basis in January, from a more than 20-year peak in December 2022 – marking the first time since May 2021 that inflation dipped, according to official figures from Ghana Statistical Services (GSS).
The recent drop, according to GSS, was driven largely by a fall in non-food inflation which dropped to 47.9 percent; with food and non-alcoholic beverages being the major contributors to overall inflation, while food inflation in January, mostly from imported sources, rose slightly to 61 percent.
Among those projecting a lower inflation rate for this year is included Databank Research, which is anticipating inflation to remain high until end of first-quarter of the year, due to renewed inflationary pressures, before beginning to follow a disinflation path for the rest of 2023 with a year-end consumer price index rate of 19.5 percent.
“We expect headline inflation to end FY23 at 19.5 percent,” said the Research arm of Databank in its Quarterly Strategy Report.
Concerns have been raised over the pass-through effect of the 2.5 percent hike in Value Added Tax (VAT) as well as a total reversal of the benchmark discount policy on imported goods.
This is in addition to the 29.96 percent and 8.3 percent increase in electricity and water tariffs respectively, effective February 1.
Despite these developments, Databank expects the favourable base effect and complementary monetary policy decision to alleviate inflationary pressures, with the impending US$3billion International Monetary Fund (IMF) deal also expected to give some respite to the cedi; consequently limiting its pass-through effect on inflation beyond the first quarter.
Similarly, analysts at GCB Capital Research expect that despite some renewed price pressures, inflation will remain stable in the first quarter of 2023. The firm believes that the worst of inflation may have already passed, following a continuous increase for 19 months.
While interventions in revenue and fluctuations in the cedi and petroleum prices could cause inflation, GCB Capital Research expects the impact to be moderate.
“We expect a sharper cooling of inflation from Q2-2023, helped by easing price pressures, favourable base drift and complementary monetary policy,” said GCB Capital Research in a note following the announcement of latest inflation figures.
Furthermore, GCB expects that favourable trends in the global oil market may contribute to sustained lower petroleum prices, which it believes could lessen the impact of rising transport fares on inflation.
While welcoming the forecasts that petrol and diesel prices will decrease by 7.1 percent and 10.8 percent respectively during the second pricing window in February, Apakan Securities remains cautious about the volatility of crude oil prices on the global market.
“Despite the announcement by the United States this week to release 26 million barrels of oil from its strategic reserve, the cut in Russia’s oil output in response to the price cap imposed by the West and the reopening of China, the largest oil importer, balances the direction of prices for crude oil to the upside,” Apakan said in a recent commentary.
It also raised concerns about the full impact of year-to-date losses on the local currency front, which is estimated to be 18.45 percent; as well as the possible impact of delays in restructuring the nation’s external debt.
This also comes as the Minority in parliament want the Domestic Debt Exhange Programme (DDEP) to be subjected to parliamentary approval.
“On the currency front, although the Ghana cedi has achieved some stability in February 2023 – month-to-date depreciation of 2.70 percent – the full effect of year-to-date losses of 18.45 percent heralds a significant risk.
“Additionally, delays in restructuring Ghana’s external debt to secure IMF board approval will put further pressure on the cedi, as Fitch plans to downgrade the country’s foreign currency to restricted default (RD) from C this week; following government’s failure to meet Eurobond coupon payments last month,” it elaborated.
Apakan however maintained its expectation that the supportive base effect, in particular, will sustain the disinflationary path in coming months.
Constant Capital, meanwhile, in its Flash Notes is projecting the pace of inflation to continue slowing down in the near-term – supported by cedi stability, recovering foreign exchange liquidity, as well as the balance of payment support expected to come from the IMF’s programme to stabilise the cedi.
In a vote for a more positive outlook for inflation, all the firms agree that the monetary policy stance will remain cautious and focused on setting inflation on a clear path of decline – while keeping an eye on price developments and the impact of policy on economic growth.
“The Bank of Ghana raised the policy rate to 28 percent after its January 2023 meeting to continue anchoring inflationary pressures, based on the most recent economic developments,” said Constant Capital.
