Inflation to peak in Q2 but will remain within 8±2% range in 2020

Inflation is expected to peak in the second quarter of this year, the Bank of Ghana has said.

According to the central bank, its latest forecast points to elevated risks to the inflation outlook in the forecast horizon, underscored by the recent jump in headline inflation

In May 2020, inflation went up to 11.3% from 10.6% recorded in April 2020.

This was because of an increase in prices of certain food items.

“On the downside, relief measures on water and electricity tariffs and declining crude oil prices are likely to ease price pressures in the outlook”.

In the bank's assessment, the recent rise in inflation is projected to peak in the second quarter and begin, beyond which the economy will begin on a path of disinflation with inflation settling within the medium-term target band by the end of the year.

The BoG pointed out that the baseline projection for headline inflation still remains at the upper-end of the medium-term target band of 8±2 per cent to the end of 2020.

It emphasised that the output gap (the measure of the level of capacity utilisation) is projected to remain negative in the medium-term, driven by real sector expectations of weak economic activity, persistence of the current negative demand shocks, and relatively tight monetary conditions in the forecast horizon. Also, under-capacity utilisation (negative output gap) is projected to keep real marginal costs low in the forecast horizon.

However, real interest rate is expected to remain above trend with the real exchange rate remaining broadly close to fundamentals since the nominal exchange rate is projected to remain broadly stable.