Research firm IC Research has revised its 2024 inflation forecast for Ghana, predicting an annual inflation rate between 19.3% and 21.3%.

This projection represents a significant upward adjustment of 340 basis points from earlier estimates. The revised forecast comes in response to anticipated inflationary pressures in the second half of the year, offset by expected downward pressure from food harvests in the third quarter.

The June 2024 inflation data revealed a growing divergence between food and non-food inflation, similar to trends observed between May and July of the previous year. IC Research noted that this divergence could introduce “stickiness” into annual inflation rates in the latter half of 2024. The situation is compounded by a favorable base effect from the same period in 2023, which had temporarily eased inflationary pressures.

While it may be premature to conclude that this divergence will lead to prolonged inflationary issues, the report highlights the potential impact of seasonal factors on food prices. Specifically, the annual closed fishing season, which began on July 1, 2024, is expected to sustain price pressures on fish and other seafood products. This one-month observance for artisanal fishing and a two-month hiatus for industrial trawlers could maintain elevated seafood prices through July, with a slight easing anticipated in August.

Non-food inflation is also facing upward pressures, driven by new utility tariffs and increased petroleum prices effective July 1, 2024. The recent utility tariff review for the July-September quarter introduced an electricity tariff hike ranging from 3.45% to 5.84%.

Despite these increases, the sector regulator indicated a revenue under-recovery of GH906.2 million, which will need to be addressed in subsequent quarters. IC Research suggested that these factors will contribute to elevated inflation rates in the second half of 2024, despite the expected moderation from food harvests in late Q3 2024.

Current Inflation Trends and Outlook

As of June 2024, Ghana’s inflation rate had declined for the third consecutive month, settling at 22.8% year-on-year, a 30-basis point decrease. Month-on-month, headline inflation also dropped by 30 basis points to 2.9%. Despite this recent downward trend, the revised annual inflation forecast remains significantly above the Bank of Ghana’s year-end target range of 13.0% to 17.0%.

IC Research’s forecast underscores the complex interplay of factors influencing inflation in Ghana. While the food harvest in the third quarter is expected to provide some relief, the combination of higher utility costs, increased petroleum prices, and seasonal effects on food prices presents significant upside risks to inflation. The research firm emphasizes the importance of closely monitoring these developments, as they could have substantial implications for economic stability and policy decisions.

The revised inflation forecast poses challenges for monetary and fiscal policymakers in Ghana. The Bank of Ghana may face pressure to adjust interest rates or implement other measures to manage inflationary pressures, particularly if the forecasted rates exceed the central bank’s target range. Additionally, the government may need to consider policy interventions to mitigate the impact of rising utility costs and other non-food inflation drivers on households and businesses.

Overall, the upward revision in the inflation forecast reflects a cautious outlook for Ghana’s economy in the latter half of 2024. While there are factors that could help moderate inflation, the presence of multiple upside risks suggests a need for vigilant economic management. Policymakers will need to balance efforts to contain inflation with measures to support economic growth and ensure that essential services remain affordable for all Ghanaians.

With inflation expected to remain elevated, stakeholders will need to navigate a challenging environment, balancing the competing demands of inflation control and economic development.