GhanaInflationInsightsMacroeconomic update

15 November 2023


In brief

  • Ghana’s CPI inflation continued its cooling momentum, declining faster than our expectation, with a 290bps slump to 35.2% y/y in October 2023. This translates into a cumulative decline of 18.9pp in the first 10-months of 2023 and raises the prospect of outperforming the authorities’ year-end upper target of 31.4% and the central target of 29.4%.
  • Annual food inflation recorded the sharpest decline, tumbling by 460bps to 44.8% y/y, on the back of broad-based y/y declines in inflation for 14 out of the 15 sub-classes. Non-food inflation came in at 27.7% y/y in October 2023, declining by 160bps compared to the September 2023 level.
  • We believe the favourable global and domestic energy price developments over the past year amidst the range-bound movements in the exchange rate since February 2023 largely explain the downtick in transport inflation. Furthermore, we opine that the modest hike in utility tariffs in September 2023 was easily contained within the Classification of Individual Consumption by Purpose (COICOP), limiting the spillovers (unlike the jumbo hike in the same period of 2022).
  • While the overall dynamics in the consumer price index (excluding energy & utilities) suggests that core inflation is on the decline, we perceive potential downward stickiness in services inflation as a few relatively influential components showed upside vulnerability. This inflation behaviour will keep the policy rate unchanged for the rest of 2023, potentially stretching into 2Q2024.
  • Both core and headline inflation rates remain above the policy rate of 30.0% and requires additional disinflation to restore positive real interest rates and a sufficiently restrictive monetary policy stance. Furthermore, we expect the high-yield 56-day BOG securities (currently priced at 30.0%) to provide stiff competition to the Treasury securities at the weekly auctions and ensure a near-term stickiness in yields for T-bills. For November 2023 annual inflation rate, we foresee a strong favourable base effect potentially suppressing the headline rate to 28.4% y/y while the month-on-month inflation ticks up to 3.1%.

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