Pursuit of single-digit inflation unnecessary- Prof. Aryeetey

Another issue that came up during the week was whether the issue of single-digit inflation is important at all in the face of the desires of the country.

Ernest Aryettey Director of Institute of Statistical Social and Economic Research (ISSER) who was addressing the first Baah Wiredu Memorial Lectures in Accra last week stated that is the structure of an economy that determines the size of inflation.

“There is no economic theory that has stated that a low inflation rate of 2% for example is better than a high rate of 12, 15 or 20 %”, Prof. Aryeetey remarked.

He suggested that Ghana is not yet ready for single digit inflation since the structure cannot contain it. He suggested that a rate of between 12 to 15% is the most ideal for now, noting that over the last 20 years any time there inflation hovered around 15% things tend to be comfortable in the system, but when it went over 20% “things go haywire”.

He said sometimes the talk of single-digit inflation seems to be used only to please the International Monetary Fund (IMF), explaining that African countries such as Uganda who have had single-digit inflation over the past 10 years have had fluctuating economic fortunes and depended heavily on aid.

He said that the main issue about inflation is how it influences employment, and wonders whether the government can achieve all the social interventions and at the same time achieve single-digit inflation.

A former President of the Association of Ghana Industries(AGI) Prince Kofi Kludjeson also noted during the presentation of the 2008/09 Business Climate Report by the AGI that said single-digit inflation is not necessary for Ghana’s growth.

He supported this with the example of Turkey which is reported to have an inflation rate of about 80% and “yet manufacturing goes on and things are moving on well in that economy”.

Magnus Ebo Duncan, Head of Economic Statistics at the Ghana Statistical Service remarked to the Financial Intelligence that the issue of single-digit inflation, aside of being used by politicians to compare performances, became prominent because of the convergence criteria set by the West African Monetary Institute (WAMI) to achieve a single currency for the member states.

“But at times, squeezing spending to curb inflation affects economic growth. Mopping up excess liquidity can also cripple growth”, Mr. Duncan said.

He said although the nation must not make a fetish of single-digit or high inflationary trends, the disadvantages of high inflation far outweigh its merits. But, this, he said, depends on the direction one wants to drive an economy.

He advised that for a country to be an economy to be comfortable, curbing inflation must walk hand-in-hand with growth. He said neither can walk alone to achieve any useful end.

He added that all these however depend on the structure of the economy, which he believes needs fine-tuning.

Mr. Duncan also remarked that Ghana might even be over-burdening itself in slowing down inflation, since in some of the WAMI states the coverage is very narrow and the methodology is not up to standard.

He disclosed to this paper that ECOWAS is therefore working to harmonise the way data is collected, and even trying to use the same software in collecting data.

“All the countries in the sub-region are trying to use the same software that Ghana uses in arriving at their statistical figures”, Mr Duncan who is currently in Lome for a training workshop on this harmonization policy noted.