Ghana inflation hits 40.4% in October

Ghana's headline inflation rate has surged to a new high of 40.4% in the month of October, surpassing all previous expectations. The data released by the Ghana Statistical Service points to key drivers of this upward pressure, primarily stemming from sectors such as housing, water, electricity, gas, and other fuels. To delve deeper into the implications of this startling report and shed light on the potential responses from Ghanaian authorities, Courage Boatty, an economist at GCP Capital, provides valuable insights. Boatty acknowledges the unpredictability of the inflation rate, stating that while an exact figure was not pinned for October, it was anticipated that inflation would experience a significant uptick. Factors such as the escalating utility prices, notable depreciation of the CDU, increased monetization of the fiscal deficit by the Bank of Ghana, and substantial price hikes across various commodities contributed to the inflation surge. Hence, the spike to 40.4% did not come as a surprise to industry experts. Addressing the monetary policy measures needed to counter this inflationary trend, Boatty emphasizes the necessity for the authorities to address the demand-side pressures fueled by the deficit monetization. He foresees a continuous effort to mop up excess liquidity from the market and indicates a potential interest rate hike in December to curb inflation. The looming challenge remains the absence of the typical September-October drop in inflation due to new harvest seasons, signaling a shift in the expected trends. In terms of market reactions, Boatty notes that Ghana's bonds are already trading at stressed levels, with potential implications on the T-bills market. Investors are likely to react to the inflation data, resulting in an anticipated uptick in the T-bills rates at the upcoming auction. Despite the market jitters, Boatty remains cautiously optimistic about the trajectory of inflation post the first quarter of 2023. While conducting simulations based on the updated inflation figures following the recent rebase to 2021, Boatty predicts that inflation is set to hover around 45% by the end of the year and may remain near 40% through the first quarter of the following year. With the implementation of an IMF program, Boatty anticipates a gradual decline in inflation rates from the second quarter of 2023 onwards. Barring any unforeseen external shocks, the economist envisions a significant reduction in inflation, potentially reaching levels as low as 15-16% by the end of 2023. The persistence of elevated inflation levels underscores the urgency for swift and strategic policy responses from Ghanaian authorities. Boatty's projections serve as a stark reminder of the economic challenges plaguing the nation and the imperative for decisive actions to stabilize the economy and steer it towards a path of recovery.