In brief
- Headline inflation threw us a curveball with an unexpected uptick of 30bps in January 2024 to 23.5% year-on-year against our forecast decline to 22.4% (average market expectation: 22.6%). Against the odds of continued disinflation on the back of a strong start to the year by the Ghanaian Cedi, stable energy prices, and lagged impact of lower electricity tariff, the upturn in inflation is a twist of fate that potentially dampens market optimism.
- The renewed price pressures were ignited by a 180bps upsurge in non-food inflation to 20.5% y/y, which outweighed the 160bps decline in food inflation to 27.1% y/y. On a month-on-month basis, headline inflation came in higher at 2.0% as both food and non-food inflation rates edged up to 1.6% (+30bps) and 2.4% (+140bps), respectively. The heightened pressure in the monthly inflation rate dampens our optimism about the pace of decline in annual inflation in 1H2024 amidst the new taxes introduced in the 2024 budget and expected pass-through of recent FX pressures.
- Notably, inflation for the heavily-weighted housing, utilities, gas & other fuels (22.6%) surged 310bps with added pressure from transport (5.6% y/y | +120bps) and education services (19.8% y/y | +590bps). Excluding the CPI for the heavily-weighted energy and utilities while accounting for the modest increases in other non-food items and the 160bps decline in food inflation, we opine that core inflation probably inched down in January 2024.
- The unexpected uptick in headline inflation bucks the trend of five consecutive months of decline in annual inflation and raises the inflation profile to a higher level than previously envisaged in our model for 1Q2024. Our estimation shows that the 100bps cut in the policy rate resulted in a 130bps reduction in the ex-post real policy rate to 5.5% in January 2024.
- Against the backdrop of higher taxes in the 2024 budget and pass-through of recent Cedi depreciation, we project annual and monthly inflation rates at 23.9% y/y and 2.2% m/m in February 2024. This will further reduce the real policy rate and likely keep the March MPC rate decision on hold at 29.0%.
Downloads
Download Full Report