Sarpong: Ghana inflation to continue slowdown

Ghana's economy has been a focal point for investors and analysts alike, particularly in the context of inflation trends and investment opportunities. Analysts at Sarpong Capital are of the opinion that Ghana's inflation is on a downward trajectory due to the sustained reforms implemented by the government. Yomi Mayomi-Akinola, Head of Research at Sarpong, provided valuable insights on the current state of inflation and the investment landscape in Ghana. The country's inflation rate, while showing improvement, still remains above the government's target band of 6% to 10%. Food inflation has seen a decline to about 19.1%, whereas non-food inflation, comprising categories like housing, utilities, fuel, education, and health services, witnessed a slight increase to approximately 21.5%. Locally produced items continue to experience high inflation at 22.2%, reflecting the challenges faced by the domestic market. Imported items are also not immune to currency pressures, registering an inflation rate of around 16.5%. Despite these encouraging trends, it is evident that Ghana is not completely out of the woods yet. The finance ministry's forecast of inflation decreasing to 15% by the end of the year may be overly optimistic. Several factors, such as regional disparities in inflation rates, seasonal upticks due to the festive season, and the upcoming general elections in December, are expected to contribute to the slowdown in the disinvestment process in the coming months. The Monetary Policy Committee (MPC) of Ghana has maintained its key interest rate at 9% since the start of the year. While improvements in inflation are likely to influence the MPC's decisions, experts do not foresee an interest rate cut in the near term. The delicate balance between promoting economic growth and ensuring price stability necessitates a cautious approach to any potential policy changes. Currency stability remains a concern for Ghana, with the local currency, the Ghana Cedi, facing pressures against the US dollar. Liquidity constraints and supply-demand imbalances have led to fluctuations in the exchange rate. The Bank of Ghana's interventions have attempted to mitigate these challenges, but maintaining stability in the foreign exchange market requires ongoing attention. Inflation-linked bonds could offer a potential solution to address the impacts of foreign currency fluctuations on pricing. The recent domestic debt exchange programme, inviting bondholders to swap their holdings for new bonds, is expected to receive substantial participation. Clear communication and transparent options for bondholders are crucial to ensuring the success of the exchange programme. The ongoing 2024-2025 cocoa season in Ghana presents opportunities for financing and investment in the cocoa sector. The government's initiatives to support farmers and enhance productivity aim to bolster the cocoa industry's viability. It is essential to balance the financing needs of the cocoa season with the broader investment landscape in Ghana, encompassing sectors beyond cocoa. The Ghana equities market has exhibited subdued activity, with telecommunications and commodity stocks driving performance. Investors are adopting a cautious approach, particularly ahead of the upcoming elections. Despite the flatlining of the Ghana Stock Exchange Composite Index, there is interest in new gold exchange-traded funds, reflecting a hedging strategy amidst market uncertainties. Efforts to attract new listings and enhance investor participation through initiatives like the OTC market launch are underway, signaling a commitment to strengthening the country's capital markets. The outlook for new listings and increased market activity remains positive, with ongoing efforts to promote diversification and growth in Ghana's equities market.