Currency slump spawns surprise jump in Ghana’s inflation rate

Prof Samuel Kobina Annim, head of Ghana Statistical Service
Prof Samuel Kobina Annim, head of Ghana Statistical Service

Ghana’s annual inflation rate climbed to 31.7% in July, authorities have said.

According to the Ghana Statistical Service, the figure is 1.9 percentage points higher than the recorded 29.8% in June 2022. This means that in July 2022 the general price level was 31.7% higher than in July 2021.

That’s the fastest pace since November 2003 and marks the 11th consecutive month the rate has exceeded the top of the central bank’s target band of 6% to 10%. None of the six economists in a Bloomberg survey expected inflation to accelerate at that pace.

Government Statistician Prof. Samuel Kobina Annim says the inflation rate for July was mainly driven by transport and utilities.

The cedi has weakened more than 30% against the dollar since January, making it the second-worst-performing currency in the world of those tracked by Bloomberg, after the Sri Lankan rupee. With central banks unleashing the most aggressive tightening of monetary policy in a generation to cool surging inflation, investors have been selling off riskier assets and buying US dollars.

While price pressures are expected to start easing as Ghana approaches its harvest season and the cost of wheat and other global commodities decline, the central bank may be persuaded to raise the cost of borrowing next month if the cedi continues to depreciate. The Bank of Ghana’s monetary policy committee next meets in September.

“The peaking and subsequent decline in inflation depends on the trajectory of the exchange rate and its pass-through effects on inflation,” Courage Kwesi Boti, an economist at Accra-based GCB Capital Ltd., said before the release.

Annual imported inflation was 33.9% in July and has now outpaced domestic price growth for four months, Annim said. Locally produced inflation was 30.9%, he said. Food-price growth quickened to 32.3% from 30.7% in June, and non-food inflation accelerated to 31.3% from 29.1%. Prices climbed 3.1% in the month.

S&P Global Ratings last week became the latest ratings company to cut its assessment of Ghana’s ability to repay its debt, downgrading its rating by one notch to CCC+, seven levels below investment grade, and changing the outlook to negative from stable. Deteriorating economic conditions prompted the nation last month to seek an economic program from the International Monetary Fund.

The Ghanaian cedi extended its losses, weakening a seventh day by 0.9% to a record low of 8.8869 per dollar by 10:30 a.m. in the capital, Accra. The yield on Ghana’s dollar bonds maturing in 2032 rose 13 basis points to 20.6%.

SOURCE: Bloomberg

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