The Bank of Ghana (BoG) has maintained its stance on consumer inflation, projecting it to remain within the medium-term target of 8 percent with a band of ±2 percent in the near-term – barring any unforeseen shocks.
This, per the bank, will broadly be driven by food prices – which reflect recent supply shocks that are expected to put upward pressure on food prices. The latest projection follows the recent upsurges in inflation for the past few months, reaching 11 percent in October 2021 since the May 2021 low of 7.5 percent.
“Food inflation is forecast to remain elevated in the near-term before declining to the central path in the medium-term. In contrast, non-food inflation is expected to stay close to the central path in the outlook,” one section of the central bank’s September 2021 inflation outlook and analysis reads.
“Headline inflation is expected to ease to the central path in the medium-term as food price pressures abate. Imported inflation is expected to stay elevated in the near-term and exert some upward pressure on domestic prices before easing as inflation returns to target in trading-partner countries.”
Per the Ghana Statistical Service (GSS) data, inflation had slowed down to 7.5 percent in May 2021 from 10.3 percent in February this year; since then, it has reverted back to pandemic levels – largely on the back of increasing non-food inflation.
Production costs in both the food and non-food sectors are forecast to remain low due to lower domestic input costs. But over the medium-term, production costs are projected to gradually increase as the economy recovers.
However, the latest inflation data from the Ghana Statistical Service (GSS) indicate that food’s contribution to overall inflation has declined, contributing less than half to overall inflation.
Food inflation’s contribution to total inflation further dropped from 48.6 percent last month to 44.9 percent in October. But on a monthly basis, food inflation was -0.3 percent, which is lower than the twelve-month national average of month-on-month inflation.
Activity in the real sector is expected to remain below capacity in the near-term. “Subdued real sector expectations arising from weak business confidence, tight monetary conditions, rising ex-pump petroleum prices, and fiscal consolidation are projected to moderate economic activity in the near-term,” the central bank said.
In the outlook, activity is expected to improve as businesses explore innovative ways of adjusting to impacts from the pandemic. The bank projects that main upside risks to inflation in the outlook include the elevated global inflation, pressure from domestic food prices and high ex-pump prices.