Early indications have signalled an easing in the rate at which prices of goods and services are rising, Director of Research at the Bank of Ghana, Dr. Philip Abradu-Otoo, has suggested.
Inflation accelerated to 27.6 percent in May – an 18-year high, compared to 7.5 percent at the end of May 2021. This has been driven primarily by the pump price of petroleum products and its effect on the cost of transportation and food, among other items.
Speaking on the theme Monetary Policy, Central Bank Leadership and Stability of the Cedi, at the eighth edition of the UPSA Law School’s Quarterly Banking Roundtable, Dr. Abradu-Otoo – who doubles as a member of the Monetary Policy Committee – said data from the first week of June are pointing to a marginal deceleration in the pace of inflation.
“Inflation is high, no doubt, but it will begin to ease soon. I am confident because we have begun to see some numbers for June – the first week of June – and those numbers suggest we are likely to see a monthly increase that will be a bit lower than what we saw in May; and that should send a signal that, maybe, we are getting close to the peak of inflation,” he stated.
The central bank’s representative reasoned that this will lead to improved consumer and investor confidence.
The bank’s latest forecast shows a continuing elevated inflation profile in the near-term, with a prolonged horizon for inflation to return to the target band. Inflation expectations by consumers, businesses and the banking sector have also heightened.
According to the central bank, risks to the inflation outlook are on the upside and emanate from the availability of inputs for food production, imported inflation, continued upward adjustments in ex-pump petroleum prices and transportation costs, possible increases in utility tariffs, and potential wage pressures. The second-round effects of these price adjustments are expected to further amplify inflation pressures in the outlook.
Delivering on mandate
Efficacy of the central bank’s primary monetary policy tool – its inflation-targetting framework – has come under scrutiny in recent months as inflation continues on the ascendancy. Introduced in 2007, it seeks price stability by keeping inflation between 6 and 10 percent.
Despite some success, it has been called into question for being ineffective in addressing the current wave of inflation, which is predominantly supply-side induced.
But offering a defence for the central bank’s approach, its Director of Research said, on the balance of things, the current framework has not only provided relative stability – and in the process outperformed previous models – but has also proved useful in influencing growth of the real economy.
“There is a bit of misconception there; when people hear about inflation-targetting, they think all we do is chase inflation and neglect real-sector indicators. If we cast our minds back to the seventies, we have had the direct control and money supply… If you compare inflation performance under the current regime to the two previous, the volatility has been very minimal except in moments of extreme shocks… even during the pandemic era, I would say it has worked very well as the central bank used tools from this kit to address growth concerns,” he explained.
Expressing optimism that measures being undertaken on the fiscal side will consolidate monetary counterparts, he said the central bank will not relent in its vigilance to ensure there are no slippages.
“From the Bank of Ghana’s side, we will continue to implement prudent external sector policies which will restore confidence in the economy and ensure the economy is treading a very safe path. We cannot ensure stability without vigilance and the central bank is intrusively vigilant; and we are monitoring things to ensure we do not relapse into unsafe territory.”