The downward trend in inflation will give comfort to businesses and consumers as the real purchasing power of consumers will increase, economist and Adjunct Senior at the Institute of Economic Affairs (IEA), Dr Eric Osei-Assibey has stated.
Workers, he said should be happy since their real wages will increase and be higher than before.
“They will be able to purchase more goods and services than before,” he told this paper minutes after the Ghana Statistical Service (GSS) announced a further reduction in April inflation to 9.6 per cent in Accra yesterday.
The drop, the GSS indicated was attributable to a reduction in the cost of electricity, transportation and other utilities.
Interest rates expected to decline
It is expected that interest rates which have been a key issue, especially for businesses will follow suit and come down.
“Given that inflation has been on the downward trend for a long time now we expect that the monetary policy rate will be reduced further so that reduction is also reflected in the lending rates,” Dr Assibey said.
Increasingly the gap between the lending rate and the inflation rate is too wide, a phenomenon that has been the concern of many economic analysts.
Good signal to investors
The drop in inflation is a positive signal for both international and local investors. For international investors, the drop in inflation gives an indication of the restoration of macroeconomic stability which creates the enabling environment for investment, gives the signal that the market conditions are good for investment
“We are talking about certainty, we are talking about planning for investments so if you macroeconomic environment is unstable it won’t be good to put their money here,” Dr Assibey with the University of Ghana explained.
Further drop in inflation feasible if …
According to Dr Assibey, if government is able to maintain the momentum, “if we don’t see much increase in fuel prices or utility tariffs, if we can keep the cedi stable, with a favourable weather so that food inflation would be subdued, then we can see inflation moving further downwards.”
Even though food prices are likely to increase as the lean season approaches, the positive side is likely to outweigh the downward side and do it is unlikely that inflation could rise.
Govt must invest more into production
To keep the taps on inflation, Dr Assibey thinks government must invest more in agricultural production because “food inflation plays a key role in core inflation.”
Manage exchange rate prudently
It is important to ensure that the exchange rate remains stable because the exchange rate pass through to inflation in Ghana is so high that “anytime we have depreciation of the cedi, we see it reflect in imported products and then prices of non-food products begin to go up.”
According to the figures, the food inflation rate for April 2018 was 7.4 percent compared with 7.3 percent recorded in March 2018. The continuous decline in food inflation is largely due to the planting for food and jobs policy, a policy initiated by the present government when it assumed power in January 2017.
Within the Food group, six sub-groups recorded inflation rates higher than the group’s average of 7.4 percent. They include coffee, tea and cocoa; fruits; meat and meat products; mineral water and soft drinks; food products and vegetables.
The non-food inflation rate for April 2018 was however 10.6 percent as against 11.8 percent recorded in March 2018. Within the Non-food group, four sub-groups recorded inflation rates higher than the group’s average of 10.6 percent. They are clothing and footwear (17.2 percent0; recreation and culture (13.6 percent); furnishing and household equipment (13.0 percent) as well as miscellaneous goods and services (12.3 percent).
According to the figures, the non-food inflation rate is almost one and half times that of the food inflation rate.
The inflation rate for imported items was however 12.0 percent in April 2018 compared with 11.8 percent recorded in March 2018.
At the same time, the inflation rate for locally produced items was 8.5 percent in April 2018 compared with 9.8 percent recorded in March 2018.
For the regions, the Upper West region recorded the highest combined and non- food inflation rates while the Ashanti region recorded the highest food inflation rate in April 2018. Beside Western (10.0 percent, Brong Ahafo (11.0 percent) and Upper West (11.7 percent), all the other regions registered single digit inflation.
According to its Monetary Policy Report, continued improvement on the global economic front including stability in the foreign exchange market and achievement of the medium term fiscal targets would reinforce this outcome.