BoG report forecasts return to single digit inflation by 2nd quarter, 2021

The country could miss out on returning to single digit inflation for this year, as prices of some food items remain high, a new report from the4 Bank of Ghana has warned.

Rather, double-digit inflation may persist until the second quarter of this year, putting pressure on the Bank of Ghana to raise its key Monetary Policy Rate in the months ahead.

According to the Bank of Ghana’s Inflation Outlook Report, the sharp rise in inflation in the second quarter of this year has curtailed the slowdown in the inflation rate.

The nation had been enjoying single-digit inflation between August 2019 and March 2020, but the impact of COVID-19 has pushed inflation upwards since then.

The central bank said the disruption in the disinflation process has a potential for prolonging the time horizon for reaching a stable rate of inflation within the target band of 8 percent plus or minus 2 percent.

Latest data shows that inflation is currently above its upper limit, driven mostly by food prices.

But adjusting for the unusual rise in the food inflation rate, the indications are that underlying inflationary pressures are stable.

“The projections show a return of inflation to the medium-term target band by the second quarter of 2021, partly conditional on corrective fiscal measures being introduced in the near-term”, the report emphasised.

According to the report, inflation expectations of the financial sector, businesses, and consumers have all trended upwards.

This could compel the Monetary Policy Committee to adjust the Policy Rate-the rate at which it lends to commercial banks-upwards from the present 14.5 per cent. This means the cost of credit may go up.

After remaining flat at 7.8 per cent in the first quarter, inflation rose to 11.2 per cent in the second quarter.

This sharp increase was driven largely by food prices, which spiked in response to the panic-buying episode preceding the partial lockdown that was announced at the end of March 2020.

Food prices continued to increase from 8.4 per cent at the end of the first quarter to 13.9 per cent at the end of the second quarter, while, non-Food inflation also rose from 7.4 per cent to 9.2 per cent, but this has been at a much slower pace than food prices.