By Ernestina MENSAH
Ghana’s economy continues to grapple with exchange rate volatility, with the Ghana cedi experiencing both sharp depreciations and occasional gains against major currencies like the US dollar.
While consumers brace themselves for price hikes almost immediately when the cedi weakens, a perplexing trend remains: prices rarely fall when the cedi stabilizes or strengthens.
This phenomenon—widely known in economics as “price stickiness”—has become a structural challenge, undermining inflation control, eroding consumer welfare, and straining trust in the market system.
Recent Developments: Fuel Price Reductions and Electricity Tariff Hike
In June, Ghana witnessed a notable reduction in fuel pump prices, following declines in global crude oil prices and some cedi stability. Despite this, transport fares and the prices of goods and services linked to transportation costs remain largely unchanged, leaving consumers wondering why downward adjustments are so elusive when input costs fall.
This is happening even as geopolitical tensions in major oil-producing regions continue to create uncertainty about future fuel price movements, making businesses even more cautious about passing on temporary cost reductions.
Adding to consumer strain, the Public Utilities Regulatory Commission (PURC) announced an upward adjustment in electricity tariffs effective July 1, 2025, citing exchange rate pressures and rising power production costs. This tariff hike is expected to feed into general production costs, potentially fueling another round of price increases across sectors.
Why Are Prices Still Sticky in Ghana?
Several structural and behavioral factors drive this persistent challenge:
- Cost Recovery and Profit Protection:
Businesses often use periods of currency depreciation or rising utility costs to not only cover new input costs but also recover past losses or build buffers against future shocks.
- Uncertainty About Exchange Rate and Fuel Price Stability:
Given Ghana’s track record of currency volatility and the unpredictable nature of global fuel markets due to geopolitical risks, many businesses treat any recent cedi gains or fuel price cuts as temporary.
- Menu Costs and Operational Rigidity:
Frequent price changes involve real costs—relabeling products, updating pricing systems, and adjusting promotional materials—especially for SMEs operating on thin margins.
- Weak Competitive Pressure:
In sectors with limited competition like petroleum, cement, and some imported food items, businesses face little market-driven incentive to reduce prices quickly.
- Psychological Price Anchoring:
Once consumers adjust to higher prices, businesses often hold on to these new price levels, capitalizing on the “new normal” and the reduced likelihood of consumer pushback.
The Broader Economic Impact
This asymmetric price behavior means that even when macroeconomic fundamentals improve—such as exchange rate gains or lower global fuel prices—inflation remains sticky.
It undermines the impact of monetary easing by the Bank of Ghana and reduces the effectiveness of government interventions aimed at bringing relief to consumers.
The recent fuel price reductions, for example, have not translated into lower transport fares or reductions in the prices of goods and services with high logistics cost components. At the same time, the upcoming electricity tariff hike threatens to worsen the already high cost of living, further embedding inflationary expectations.
What Can Government and Regulators Do?
Tackling price stickiness requires a multi-pronged and coordinated approach:
- Promote Market Competition:
Encourage new entrants in key sectors to drive competitive pricing. Establishing a Competition Commission-like body could help monitor and address price-setting behavior.
- Strengthen Consumer Protection and Market Monitoring:
Regulators like the Ghana Standards Authority and the Consumer Protection Agency must intensify market surveillance, particularly in sectors like transportation, fuel, food, and building materials.
- Enhance Public Price Transparency:
Government and sector regulators should regularly publish data on fuel import costs, forex trends, and global commodity price movements, empowering consumers to demand fair pricing adjustments.
- Facilitate Stakeholder Dialogue:
Periodic forums between government agencies, business associations, transport unions, and importers can help establish guidelines for fair and timely price adjustments, especially when input costs fall.
- Stabilize the Exchange Rate:
Sustained exchange rate stability, driven by sound macroeconomic management, will help reduce the perception of risk that prevents businesses from lowering prices.
- Support Local Production:
Reducing dependence on imports by boosting local manufacturing and agriculture will, over time, minimize the pass-through effects of exchange rate and global fuel price shocks on consumer prices.
Conclusion
While market forces naturally determine prices in a liberalized economy like Ghana’s, there is a growing case for policy intervention, consumer advocacy, and responsible corporate behavior to ensure that consumers benefit from favorable macroeconomic developments.
If businesses are quick to adjust prices upwards when the cedi weakens or when fuel and utility costs rise, it is only fair—and economically healthy—that they respond with similar urgency when conditions improve.
Ghana’s path to price stability and economic fairness depends on correcting this imbalance.
Ernestina Mensah is a Market Risk Specialist and Economic Policy Analyst with experience in banking and financial markets.
