GhanaInflationInsightsMacroeconomic update

15 December 2023


In brief

  • Consumer price inflation decelerated sharply in November 2023 as favourable base effect pushed the pedal to the metal, pumping the brake on annual inflation. Headline inflation came in sharply below expectations, plunging by 880bps to 26.4% y/y (IC Insights: 28.4% | Market Average: 28.7%).
  • Food inflation tumbled by 12.6pp to 32.2% y/y while non-food inflation also came in lower at 21.7% y/y (-6.0pp), sliding on the back of disinflation in heavy-weight components within each sub-group.
  • Against the backdrop of a surge in November 2022 CPI, computing the year-on-year inflation with the November 2022 CPI as the base (reference) month, inflation slowed sharply in line with statistical dynamics. However, we reiterate that the favourable base effect was significantly helped by the tighter policy environment in 2023 which restrained the FX and demand pressures with calming effects across the November 2023 CPI.
  • The latest CPI print pulls headline inflation symmetrically within the 27.4% inner band and the 25.4% outer band of the lower limit under the IMF programme’s Monetary Policy Consultation Clause. Against this backdrop, we reiterate our view that the authorities will outperform the IMF’s end-2023 central target of 29.4% with a firm tilt towards the outer band of the lower limit. Encouragingly, our updated CPI forecast for end-2023 points to the potential to outperform even the outer band of 25.4% with a projected landing zone of 24.2% in December 2023.
  • At the current annual inflation rate, we obtained a positive ex-post real interest rate of between 3.2% and 7.1% across the 91-day and the 364-day T-bills, respectively. We also observed a positive ex-post real policy rate at 3.6% with the potential to widen and become more restrictive as inflation downturn continues in the months ahead. We expect the widening positive domestic real interest rates amidst the dovish outlook for the US FED to open the door for policy rate cuts in 2024, with a modest likelihood of first BOG cut in March 2024. This suggests near-term downside risk for nominal yields across T-bills. In view of this, we reiterate our stance that the 364-day tenor will offer the most attractive inflation-adjusted return over the holding period.

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