March’s 25.8% inflation rate poses no threat to disinflation trend

Consumer inflation reached a new high of 25.8 percent in March 2024, the highest level since November of last year, according to data released by the Ghana Statistical Services (GSS).

The increase, up from 23.2 percent in February 2024, was largely driven by base drift effects following a sharp decline in prices in March 2023. This created an unfavourable comparison that amplified the impact of even a modest rise in the consumer price index (CPI) this year.

But speaking to the B&FT in the wake of the disclosure, Mr. Boti explained: “It is an increase but I am not surprised. My expectation was 26 percent. Will this be a trend that continues? Admittedly, there are upside risks to inflation, but from April we should begin to see a return to the path of disinflation. The exchange rate, petroleum price and impending transportation price hikes will serve to moderate the pace of disinflation but we expect that without any significant shocks. The general trend is that there will be a continuous decline in inflation”.

The economist added that while he was yet to formally alter his year-end projections, he expects inflation to close the period at under 20 percent.

Mr. Boti cited adherence to fiscal discipline under the International Monetary Fund (IMF) programme, the potential dip in liquidity and Treasury bill yields due to Bank of Ghana’s recent cash reserve requirement as well as an easing of supply-side energy challenges as some factors which he believes will ensure disinflation is restored.

Despite food inflation rising to 29.6 percent in March, Government Statistician Professor Samuel Kobbina Annim stated that the hike was broad-based and could not be attributed primarily to imported food. Non-food for last month also stood at 22.6.

“If you look at the food that is imported, out of the 176 items that recorded price changes higher than 25.8 percent, we had 15.9 percent of the food that is imported relative to food that is local, which constituted 23.3 percent.

“So one cannot argue that imported food is driving the 29.6 percent that we are seeing in March 2024, because we are equally seeing that local food constituted about 41 of the 176 items that recorded price changes higher than 25.8 percent,” he said.

The data revealed that both food and non-food prices saw a 2.6 percentage point increase in March, suggesting broad-based inflationary pressures. Notably, the health sector emerged as one of the six divisions recording inflation rates higher than the national average.

“What is coming to us for the first time in a while is a division like health that hitherto we would hardly find it as a division that will record a rate of inflation higher than the overall rate of inflation,” Prof. Annim observed.

“But we are now seeing health coming up as one of the six divisions that are pointing to the higher rate of inflation.”

Market analysts had anticipated the uptick in inflation, citing the continued weakness of the cedi (-7.27 percent year-to-date as of mid-March 2024) and recent increases in ex-pump petroleum prices as contributing factors.

“We, however, flag the simmering cedi depreciation amid immediate liquidity concerns and its potential pass through to ex-pump fuel prices in the wake of the lingering crude oil supply concerns due to geopolitics as an immediate upside risk to inflation through the transport channel and general market prices,” said GCB Capital in its March review of the inflation data.

Despite the surge in March, the month-on-month inflation rate declined from 1.6 percent in February to 0.8 percent in March, suggesting that the underlying inflationary pressures may be easing.

“What we need to pay emphasis, what we need to pay attention to is year-on-year and month-on-month inflation moving in different directions as we rightly saw for the second time; we are seeing a dip in month-on-month inflation,” Prof. Annim explained.

“All this would have implications in the coming months in terms of how the month-on-month inflation would feed into the year-on-year inflation.”

GCB Capital had maintained its end-2024 inflation forecast at 16.5 percent ±1 percent, noting that the disinflation trend is expected to resume from April 2024, driven largely by base effects.

However, analysts generally remain cautious over potential fiscal overruns in the run-up to the 2024 election, which could pose an upside risk to inflation in the second half of the year.