Ghana’s Inflation Rate touches over-six-year high at 19.2% in March

Accra, Ghana, Capital Markets in Africa —  The outlook for achieving the Bank of Ghana’s medium term inflation target (8% ± 2%) could shift further into late 2017 (from the projected mid-2017) as inflationary pressures remain elevated on the back of high cost-push factors.

The year-on-year increase in Ghana’s Consumer Price Index (CPI) shocked expectations with a 70bps surge to 19.2% in Mar-2016. Consequently, average y/y price inflation in Q1-2016 (18.9%) turned out 130bps higher than that for Q4-2015 despite the relative stability in the GHS since Oct-2015.

The latest increase could push inflation rate above the government’s 2016 year-end target of 10.1% (Databank forecast: 14% ± 100bps), given the election expenditure risks ahead in Q3-2016.

On a month-on-month basis, general price levels increased by 1.7% in Mar-2016 compared to 0.8% in Feb-2016, indicating persistent upside pressure throughout Q1-2016.

The increase in Mar-2016 inflation reflects the spill-over effects of the 15% hike in transport fares in Feb-2016 which exerted an upward pressure on the general prices of goods & services during the Mar-2016 data monitoring window.

Food Inflation:
Food inflation remained unchanged at 8.3% y/y in Mar-2016, reflecting the favourable exchange rate conditions but would require sustained rainfall in key growing regions and a stable transport cost to trigger a trend reversal.

Non-food Inflation:
Non-food inflation was the main driver of headline inflation as it surged by 120bps to 25.7% in Mar-2016, fuelled mainly by transport (40%: +960bps) and education (27.7%: +230bps).

Notwithstanding the latest increase in inflation for Mar-2016, we perceive a tapering of the demand-side pressures while the cost-push shocks (elevated since Dec-2015) are expected to continue to decay gradually. We expect the continued currency stability to sustain the diminishing inflationary pressures into Q2-2016 barring unanticipated shocks from the global crude oil market. Consequently, we forecast headline inflation for Apr-2016 to remain unchanged at 19.2%.

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