Pressure group, OccupyGhana, has revealed that when the fundamentals are strong and stable, speculation is not for the average person.
According to the group, some speculators buy dollars at low prices and sell at high prices to make a profit. It indicated that there are other speculators who want dollars as a “store of value” because high inflation continues to erode the purchasing power of the cedi.
As a result, OccupyGhana stated that investing their wealth in an appreciating dollar provides protection against the erosion of their purchasing power. Thus, in an uncertain and high-inflation economy, they demand dollars to maintain the value of their wealth.
“These are forms of rational speculation that are informed by rational expectations about economic fundamentals. When there is good macroeconomic/fiscal management, low inflation, sufficient forex supply, and thus very little economic uncertainty, the average person rarely engages in speculation or speculation is not profitable. When the fundamentals are strong and stable, speculation is not for the average person.”
OccupyGhana
The pressure group noted that there has been talk of “greedflation”, excessive increases in prices by sellers for reasons that are not related to the cost of production, as a cause of Ghana’s high inflation. Greedflation, it explained, is using inflation as an excuse to increase prices.
OccupyGhana clarified that sellers increase prices for reasons such as an increase in demand, an increase in the cost of production of goods and services and an increase in the sellers’ cost of consumption (cost of living).
It highlighted that workers, sellers of labour, demand increases in salaries when there is an increase in their cost of living.
“In a high-inflation environment, a seller will increase his/her price even if there is no increase in the cost of production or service — because other sellers have increased the prices of goods and services that the seller consumes. This creates what is known as an inflationary spiral, a self-reinforcing rise in prices as sellers respond to increases in prices by other sellers. This is why hyperinflation or high inflation can be very persistent, a trap.”
OccupyGhana
Depreciation of the cedi
Whenever the cedi depreciates rapidly, OccupyGhana expressed that all sorts of theories and solutions emerge. Some of these, it stated are “fix the exchange rate”; “back the cedi with gold”; “create a currency board” and “dollarization is the cause”.
“In particular, it appears that the average person does not understand why fixed exchange rates are not sustainable or why countries, with fixed exchange rate systems, devalue their currencies.”
OccupyGhana
OccupyGhana stated that the exchange rate affects the cost of imported fuel which affects transport fares and, in turn, affects the prices of kenkey, rice, coconut, waakye, gob3, yam, plantain, cassava, gari, fish etc. However, it noted that a rise in transport fares cannot be the main contributing factor to food inflation in Ghana.
“For example, if transport fares constitute 20% of the cost of producing and distributing food (from the farm to processing/preparation to consumers), then a 100% increase in transport fares will not increase the price of food by more than 20% (assuming that sellers pass on only the 100% of the increase in transport fares to consumers).”
OccupyGhana
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