Rising inflation: Monetary policy not working, use fiscal policy – Economist

BoG revises policy rate

Inflation jumps to 27.6% in May

Source of Ghana's inflation largely fiscal,Economist

Professor of Finance, Godfred Alufar Bokpin, has noted that the country’s economic challenges are from the fiscal side.

He stated that tackling the issue with an adjustment of the monetary policy has not been entirely efficient.

“If you look at the disparity between the inflation and the policy rate and the Treasury bill rate, it tells you there’s a lot more work to be done and we cannot look to the monetary policy because the problem is from the fiscal side.

“The monetary policy is constrained in terms of how we can deploy that effectively to contain inflation and engineer growth,” he said whiles contributing to a discussion on the current inflation rate on JoyFm.

Inflation for the month of May hit 27.6% from 23.6% in April 2022.

Transport (39.0%), Household Equipment and Maintenance (33.8%), Housing, Water, Gas, and Electricity (32.3%), and Food and Non-Alcoholic Beverages (30.1.6%) recorded inflation rates higher than the national average (27.6%).

Prof. Bokpin intimated that policymakers should consider handling the issue from the fiscal side of the economy.

“We must shift our attention to the fiscal side so that the fiscal side will respond appropriately with the discipline that it requires. Once the source of the inflation is largely fiscal, then there’s a limit to how far you can deploy the monetary policy to bring down inflation and then engineer growth.”

“More so, because of the monetary policy framework that we are using under inflation targeting, because for one key requirement for inflation targeting to be effective, it is fiscal discipline. Once you deny the monetary side the fiscal discipline, then there’s no way they can use the monetary policy effectively to bring down inflation and engineer growth.

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