GhanaInflationInsightsMacroeconomic update

10 August 2023

Ghana’s July 2023 Inflation: Trapped In A Twilight Zone

In brief

  • Headline inflation came in at 43.1% y/y (+60bps) in July 2023, above our expectation of 41.7% and the average market consensus of 41.4%. Adjusting for the favourable base effect in March and April 2023, we opine that Ghana is yet to turn the corner on inflation as price pressures remain elevated and the recent upticks revive sentiments of near-term uncertainty.
  • The rise in annual inflation was occasioned by an 80bps upsurge in food inflation to 55.0% y/y, and further amplified by a 40bps rise in non-food inflation to 33.8% y/y.
  • We believe the rising inflation for alcoholic beverages, tobacco, and narcotics reflects the steady pass-through of the May 2023 hike in excise tax on health-harming products. Furthermore, we observe a renewed upturn in inflation for services items since May 2023, implying that the four successive months of decline in non-food inflation was underpinned by the lower energy prices. Deductively, we opine that core inflation has also been on the upward trend in lockstep with headline inflation in the past three months.
  • The renewed increase in energy prices will combine with upward pressure on other components to pose an upside risk to non-food and annual headline inflation in August 2023. While the diminishing impact of earlier taxes could cap the upside, we think the relatively higher weights of utilities & energy and transport inflation would be too strong to tame, in the August 2023 inflation print.
  • Our updated forecast shows a 150bps decline in the m/m headline inflation to 2.1% in August 2023. However, the recent upturn in energy prices will sustain the rise in the annual inflation rate in August 2023 with a potential to hit 43.3% y/y (+20bps). For the remainder of 2023, we maintain our expectation for a favourable base effect in 4Q2023 to pull down y/y inflation to the low-30% handle (vs high-20% levels previously forecasted).

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