GHANA’S INFLATION RATE TO RISE FURTHER THAN PROJECTED

On Wednesday 13th January, 2016, Dr. Philomena Nyarko the Government statistician in a media conference announced that the year on year inflate rate for the month of December 2015 surged to 17.7% compared to 17.6% recorded in November 2015. The Government Statistician attributed this increase to the recent utility price hikes which hit the economy in the later parts of 2015. Utility prices were increased by an average of about 56.9% in November 2015 and took effect in December 2015. Outlook for 2016 Fuel and Utilities Early 2016, the economy was further hit by an increase in fuel prices at the pumps as a result of the Energy sector Levy passed by Parliament in December 2015.The increase in fuel prices has already started having an impact as most commodities have seen slight price increases in the early weeks of 2016. The economy seems to rely much on fuel and electricity since it is the major source of energy for most households and businesses and with the increase in the prices of utilities by 56.9% in December 2015 and the recent increase in fuel prices at the pumps, inflation is expected to rise in the beginning of the year. Exchange Rate The Cedi performed poorly against its major trading currencies last year depreciating cumulatively by 14.8%, 12.6% and 7.6% against the US dollar, the Pound sterling and the Euro respectively over the 9 month period from January 2015 to September 2015 as indicated in the 2016 budget. Ghana has had problems with production internally and this has led to the economy importing almost everything it consumes which further leads to a widening trade deficit gap in the external sector. Low revenues are expected from major export commodities like crude oil and cocoa as a result a fall in the world market prices and low productivity. Low foreign reserves as a result of the low revenues expected coupled with the ever increasing demand for the country’s major trading currencies to support imports and repayment of loans, the Cedi is expected to further depreciate in value leading to high price of imports resulting in increased inflation. Others This year, Ghana goes to the polls to elect a president for the period 2017-2020 and as it has been observed for some time now, inflation in election years plummets to higher rates than projected. This is mostly attributed to the increased spending behaviors of the “politically active minds” in the quest to win power for the above stated period and beyond if they are re-elected. The printing of posters and political paraphernalia mounting of banners as well as convincing the populace by giving out money for votes (goods and services unproduced). The IMF last week Wednesday asked Ghana’s Central Bank to tighten its monetary policy by raising the policy rate which the BoG had increased last year further to reduce the rate at which credit is given out to correct the inflationary pressure. This same intervention will result in less credit being made available to producers which if not so would have been given out at lower interest rates to produce goods and services to correct the excess demand. The Government in the 2016 budget projected an end of year inflation rate of 10.1% but with the general economic outlook and happenings projected for 2016 inflation rates should be expected to rise above the 10.1% projected.