Government unlikely to meet 8 percent inflation projection – Economist

Economist and Economics lecturer at the University of Ghana, Dr. Adu Owusu-Sarkodie, has expressed doubt that the Government of Ghana will meet its expectation of 8% headline inflation rate as stated in the 2021 Budget Statement delivered by Caretaker Finance Minister, Osei Kyei-Mensah-Bonsu.

Osei Kyei-Mensah-Bonsu during the delivery of the 2021 budget statement, shared that headline inflation rose sharply from 7.9 percent in December 2019 to 11.4 percent in July 2020 due to panic buying amid the lockdown.

However, with the gradual lifting of restrictions, the food price pressures eased and headline inflation steadily declined to 10.4 percent at end-December 2020.

The Minister furthered that in 2021, monetary policy will “aim at steering inflation back within the medium-term target of 8±2 percent”.

Reacting to this projection, the economist told Samuel Eshun on the Happy Morning Show: “I don’t understand why they [Government] should do that projection because for me, it is unlikely that they will meet that 8 percent inflation target for this year. It is very unlikely because of the trickledown effect or transmission mechanism that fuel prices will have on almost every item”.

Dr. Owusu-Sarkodie believed that since the transport system is dominated by the private-owned enterprise, it will be difficult for Government to encourage a decrease in fares which could subsequently affect the prices of commodities in the country.

He continued that the best the Government could do is to negotiate with these transport unions to decrease fares even though fuel prices have been increased.

In his delivery of the 2021 Budget Statement, Caretaker Minister of Finance, Osei Kyei Mensah Bonsu announced that Government is proposing a Sanitation and Pollution Levy (SPL) of 10 pesewas on the price per litre of petrol/diesel under the Energy Sector Levies Act (ESLA) as well as Energy Sector Recovery Levy of 20 pesewas per litre on petrol/diesel under the ESLA.

He revealed that “on the basis of existing world crude oil prices, the implementation of the two proposed levies for sanitation and pollution as well as to pay for excess capacity charges, would result in a 5.7% increase in petroleum prices at the pump”.