GhanaInflationInsightsMacroeconomic update

13 June 2024

Ghana’s May 2024 inflation: The cool current of base effect

In brief

  • Headline inflation fell at a much faster pace compared to the decline in the prior month, tumbling by 190bps to 23.1% year-on-year in May 2024. Despite the relatively faster decline in the annual rate, the 23.1% print for May 2024 turned out hotter than both our expectation of 22.1% and the market expectation of 21.7%. This emphasizes a more cautious disinflation outlook than the market had anticipated, which could sustain the sluggishness in yield decline amidst the FX uncertainty.
  • As expected, the favourable base effect in the annual CPI became more pronounced in May 2024, acting as a cool current on the impact of higher energy and transport costs in domestic prices. Our analysis revealed that the favourable base effect was occasioned by the belated implementation of taxes and levies in May 2023 as part of the IMF programme, which significantly pushed up the CPI in May to July 2023.
  • Food inflation provided the main tailwind for the inflation decline, plummeting by 420bps to 22.6% y/y as 14 out of the 15 sub-classes witnessed sharp moderation in annual inflation. In our view, this reflects the broad-based nature of the favourable base effect as the impact of the 2023 excise taxes on sweetened beverages, spirits, and tobacco products waned. Non-food inflation however inched up by 10bps to 23.6% y/y on the back of a surge in Transport inflation, restraining the decline in the headline rate.
  • We foresee upward pressure from the ongoing pass-through of the Cedi’s depreciation to energy prices, transport cost, and general price levels. However, our CPI forecast for June 2024 indicates the lingering impact of favourable base effect as the tax-induced shock to the CPI level in June 2023 has fully diminished in the 12-months period. This suggests a comparatively slower increase in the CPI level in June 2024, culminating in a forecast decline in headline inflation by 120bps to 21.9% y/y.

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