Inflation drops despite increase in government expenditure

Accra, Aug. 11, GNA - Inflation rate for July dropped to a record 9.46 per cent despite the over 50 per cent increase in government expenditure in 2010, the Ministry of Finance and Economic Planning (MOFEP) said in Accra on Wednesday.

A statement from the Ministry said inflation reached 18.1 per cent in December 2008 as a result of demand pressures arising from the fiscal expansion stance of the previous government and rising crude oil prices.

It said this led to a build-up of strong inflationary pressures in the economy, which caused the inflation rate to continue to rise in the first half of 2009, reaching an all time high of 20.7 per cent in June.

The statement said the inflation was also fuelled by the weakened domestic currency, which lost more than 30 per cent of its value against the dollar between July 2008 and June 2009.

However, it said since June 2009, the inflation rate had been on a steady decline, reaching 16 per cent in December 2009, and by June this year, the inflation rate had dropped to 9.5 per cent and expected to reach at least seven per cent by December this year.

The statement said the notion that government was holding back payments to creditors which had caused the inflation rate to decline and was also starving commercial banks of cash inflow, thereby making it difficult for the banks to reduce their lending rates was not only false but a complete misrepresentation of the facts.

"Contrary to what the critics believe in, Government expenditure is rather on the increase," it added.