Ghana’s inflation remains a critical economic concern as recent trends highlight structural issues demanding complementary fiscal measures.
The December 2024 inflation report, titled “Beyond the Bullseye” by IC Research, emphasizes that the current inflationary pressures transcend cyclical factors, necessitating a dual approach of fiscal and monetary interventions.
According to IC Research, the persistent inflation pressures signal underlying structural challenges that fiscal policy alone cannot address. While Ghana awaits the 2025 fiscal plan, expectations are high for measures that could soften the tax burden, particularly in the second half of 2025, to ease the price buildup. However, the report cautions that fiscal adjustments must align with robust monetary policies to effectively combat inflation.
“We foresee the potential for monetary tightening to rein-in the demand-side pressure,” the report notes, underscoring the need for a balanced policy approach.
The Bank of Ghana (BoG) is poised to respond decisively to rising inflation. IC Research predicts a significant hike in the monetary policy rate at the first Monetary Policy Committee (MPC) meeting in January 2025.
The urgency for monetary tightening stems from Ghana’s softened real policy rate, which stood at 3.2% in December 2024. To restore a sufficiently restrictive monetary stance, IC Research recommends increasing the real policy rate to a range of 5.0% to 7.0%.
“Against this backdrop, we envisage up to 200 basis points (bps) rate hike at the January 2025 MPC meeting,” the report projects, reflecting the BoG’s resolve to restore disinflationary momentum.
Inflation Trends
Headline inflation closed 2024 at 23.8%, an 80-basis-point uptick compared to the previous month. This figure exceeded the International Monetary Fund (IMF) programme’s upper target band of 22.0% by 180 basis points, creating a sense of economic disappointment after the disinflationary progress witnessed earlier in the year.
Food inflation emerged as the primary driver of the upward trend, rising by 190 basis points to 27.8% year-on-year in December 2024. This spike underscores the lingering vulnerability of food prices to structural inefficiencies, including supply chain disruptions and agricultural productivity challenges.
On a brighter note, non-food inflation declined for the second consecutive month to 20.3% year-on-year, benefiting from the strong appreciation of the Ghanaian cedi. The favorable currency dynamics likely reduced the cost of imported goods, offering some relief to non-food sectors.
While the proposed fiscal measures for 2025 aim to ease tax burdens and stimulate economic activity, the anticipated monetary tightening could temper demand-side pressures.
IC Research’s assessment highlights the importance of coordinated fiscal and monetary strategies to address both structural inflation and economic growth. The expected 200bps hike in the policy rate, while restrictive, is deemed necessary to anchor inflation expectations and restore macroeconomic stability.
For businesses, the projected rate hike could increase borrowing costs, impacting investment decisions and operational expenses. However, the anticipated fiscal relief measures in the latter half of 2025 may provide some reprieve, especially for small and medium enterprises (SMEs) that form the backbone of Ghana’s economy.
Consumers, on the other hand, may experience a prolonged period of high food prices, given the structural challenges in the agricultural sector. Policymakers must prioritize investments in agricultural productivity and supply chain efficiencies to mitigate food inflation sustainably.
As the nation prepares for the BoG’s January 2025 MPC meeting and the rollout of the fiscal plan, expectations are high for coordinated policy measures to address inflation comprehensively.
While monetary tightening will play a critical role in curbing demand-side pressures, structural reforms in taxation, agriculture, and public spending will be essential to achieving long-term economic stability.
The year 2025 offers a pivotal opportunity for Ghana to recalibrate its policy approach, balancing inflation control with economic growth to foster a more resilient economy. As IC Research aptly concludes, the journey to disinflation requires more than monetary policy—it demands a collaborative effort across all policy fronts.
