Macro Analysis /

Ghana's inflation rises above target band – on higher food prices

  • Inflation rose by 2.8ppts to 10.6% in April 2020 from 7.8% in March 2020 – highest since rebasing of CPI

  • Spikes in inflation driven by higher food prices owing to panic buying, especially for lockdown cities

  • This increase might compel the monetary policy committee to keep the policy rate at 14.5%

Nkemdilim Nwadialor
Nkemdilim Nwadialor

Equity Research Analyst, Financials

Tellimer Research
14 May 2020
Published byTellimer Research

Ghana’s inflation rate rose to 10.6% in April, 2.8ppts higher than in March. This is the highest rate since the consumer price index (CPI) was rebased in August 2019. 

Ghana – a producer of gold (50% of exports), oil (20% of exports) and cocoa (15% of exports) – has recorded over 5,000 confirmed coronavirus cases, the highest number in West Africa, surpassing Nigeria's 4,971 on 13 May. Given the crisis, the government expects the economy to grow by just 1.5% this year, the slowest rate in nearly four decades.

Food was the predominant driver of the spike in inflation 

According to data from the statistical bureau, food prices in areas affected by the government-imposed coronavirus lockdowns drove the inflation spike – inflation figures for the regions affected by the lockdown (Accra, Kumasi and Tema) were on average 8.8% higher than other regions. 

The food and non-alcoholic beverages sector (which contributed 59% to the April inflation weighting) recorded a yoy inflation rate of 14.4%, up 6.0ppts from March 2020 (8.4%) and 6.5ppts higher than the average food inflation rate recorded in the previous eight months (7.9%). Month-on-month food inflation stood at 6.4%, translating to a mom increase of 6.4ppts. 

Other sectors that saw a considerable increase in inflation include housing, water, electricity and gas (+11.2%), alcoholic beverages, tobacco & narcotics (9.7%) and recreation, sport and culture (8.6%).

Inflation likely to remain high over the next quarter, but moderate in FY 20

Ghana’s closed land borders and the seasonality in agricultural output could cause some disruption to supply chains and pose an upside risk to food inflation in the second quarter of the year. Owing to the three-week lockdown in April, we also expect some pressure on the May inflation figure. However, the government’s utility relief package could provide some relief for consumers.

Interest rate to be kept at 14.5%

As the inflation figure falls outside the Bank of Ghana’s target band, we expect the next monetary policy committee meeting to hold the policy rate at 14.5%. Although the inflation figure might fall back within the target band, we think there is cause for caution as regards an injection of liquidity.