The Bank of Ghana is optimistic that the recent stability in average price levels in the country will continue for the rest of the year after an unprecedented rise witnessed last year due to the lockdown in some urban areas in the country. As such, the Bank of Ghana expects inflation to average 7.8 percent in the medium-term supported by relatively stable exchange rate and slower money supply growth.
To this end, the Bank of Ghana pledges to pursue policies that will ensure that the low inflationary trend observed recently in the country is maintained at least in the medium-term.
“In the outlook, headline inflation is projected to remain within the medium-term target band of 8±2 percent, supported by easing food price pressures, base-drift effects, relative stability of the exchange rate, and well-anchored inflation expectations.
“The Bank of Ghana will continue to pursue prudent policies to safeguard this favorable low inflation environment. In the medium-term (2022-2025), inflation is expected to edge downward to an average of 7.8 percent, supported by relatively stable exchange rate and slower money supply growth”.Bank of Ghana
Recent developments in price movements
According to the Bank of Ghana, headline inflation has been trending downwards in 2021, staying closer to the central path target of 8 percent for the first time since the onset of the COVID19 pandemic. Between December 2020 and June 2021, headline inflation has declined by 2.6 percentage points. Data from the Ghana Statistical Service (GSS) show that headline inflation declined marginally from 10.4 percent in December 2020 to 10.3 percent in March 2021 before falling sharply to 7.5 percent in May 2021 and then increased marginally to 7.8 percent in June 2021.
Meanwhile, Finance Minister, Ken Ofori-Atta noted in the 2021 Mid-Year Budget Review that the decline in headline inflation was on account of base-drift effects from the waning of pandemic-induced food price shocks and stability on the exchange rate front.
Declining trends in Non-Food Inflation
Notably, Food, which has been the major driver of inflation in the country over the years, has seen its contribution to total inflation gradually trending down so far in 2021. Food inflation saw a sharp decline from 14.1 percent in December 2020 to 7.3 percent June 2021.
Non-food inflation, on the other hand, rose from 7.7 percent in December 2021 to 8.2 percent in June 2021. The uptick in non-food inflation in the year, according to GSS, could be attributed to the recorded higher inflation for rent and rising ex-pump prices of petroleum products following the recovery in crude oil prices.
Moreover, in line with the decline in headline inflation, underlying inflation, measured by core inflation also continues to trend downwards. According to the Bank of Ghana, it’s main measure of core inflation, which excludes energy and utilities prices, remained steady at 10.9 percent in December 2020 before decelerating sharply to 7.5 percent in June 2021.
However, the measures of inflation expectations firmed up in April as the implementation of tax measures and increase in ex-pump prices affected the price outlook of economic agents in the recent round of the Central Bank’s survey. Generally, inflation in the first half of the year has been within the target of the central bank. We, however, await data for July, the first month of the second half to see if average prices will still remain low for the rest of the year as per the expectations of the Bank of Ghana.
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