The World Bank expects Ghana’s End-year inflation to remain within the upper band of the Bank of Ghana’s target for 2021. This means the Bretton Woods Institution does not expect the recent inflationary pressures in the country to abate until the end of the year.
In its October edition of the Africa Pulse Report, the World Bank highlighted that Ghana’s inflation rate will end 2021 at 9.8%, still within the Bank of Ghana’s target of 8%+/-2. The World Bank attributed its high inflation forecast for Ghana this year to the recent surge in food prices in the country coupled with the continuous depreciation of the local currency, the cedi.
However, the Breton Woods Institution is hopeful that the country’s inflationary pressures will ease further next year, allowing inflation to fall within the lower band in the medium-term.
“In Ghana, weak domestic currency combined with a rise in food prices pushed headline inflation from 9% year-on-year in July to 9.7% in August 2021, slightly closer to the upper bound of the official target band of 6 to 10%. It is estimated to remain close to the upper bound at 9.8% in 2021 and gradually decrease to 6.8% in 2023”.
World Bank
Gov’t end-year inflation doubtful
The recent forecast by the World Bank means that all the major international institutions, especially, the Bretton Woods Institutions, expect the country’s inflation to end the year in single digits. However, these institutions expect inflation to remain higher than the expectations of the Central Bank of Ghana.
In its recent review of the Ghanaian economy, the IMF highlighted that the country’s End-year inflation was 7.1% in 2019, rose to 9.9% in 2020, and is expected to end 2021 at 8.9%. This is a 0.9 percentage points lesser than the World Bank’s forecast. However, the Bank of Ghana is targeting an End-period inflation of 8.0% in 2021.
Currently, Inflation stands at 9.7% as of End-August 2021. According to the Ghana Statistical Service, the surge in inflation from 9.0% in July to 9.7% in August was due to increase in average food prices, transport and housing costs. In the first 8 months of the year, average inflation was 9.1%. This raises concerns as to whether the government will be able to meet its 8% target this year, especially when oil prices continue to rise on the international market.
Inflationary trends in the Sub-Region
To put things in context, the Africa Pulse Report noted that inflation rates remain relatively under control across many countries in Africa. The World Bank stated that 35 out of 47 countries had single-digit rates of consumer price inflation last year, and the number of countries is estimated to increase to 38 in 2021.
However, the World Bank stated that Inflation in Nigeria will continue to lie outside the control of the Nigerian Central Bank’s target.
“In the West and Central Africa sub-region, inflation in Nigeria remained high at 17.4 percent year-on-year in July 2021, although it has been decelerating slightly for the past four consecutive months. The average inflation for this year is projected at 16.5%, way above the official target band of 6 to 9%”.
World Bank
Aside the inflationary concerns in Nigeria, the report stated that the expectation of low interest rates for a longer period in advanced economies will enable African central banks to keep an accommodative monetary policy. If this is anything to go by, then the Bank of Ghana will maintain its policy rate at 13.5% till the end of the year.
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