Tax, fuel hikes seen increasing inflation modestly after April

Recent tax and fuel price hikes could cause modest increases in inflation after April, but this is likely to be offset by lower food inflation in the August to September harvest season, Courage Kingsley Martey, a senior analyst with Databank, the asset management company, has said.

Following a decline in January to 9.9 percent, inflation rose to 10.3 percent in February and March, with April data set to be released today.

“There are upside risks, no doubt. But I strongly feel that the favorable base effect exerts a significant downside risk that would outweigh the upside risks. On that count, I still expect April 2021 inflation to drop below 10 percent, probably towards the mid-9 percent levels,” said Mr. Martey in an interview with Business24.

He added: “But beyond April, especially from June, I think the upside pressure will start to mount stronger and could cause some modest increases, before a slowdown occurs again in August and September.”

The expected increases in inflation are based on anticipated price pressures from the recent tax increases, higher fuel costs, and higher transport fares.

Mr. Martey said the food harvest in August and September could bring down inflation for the period, but this is based on favourable weather conditions and a good harvest.

“Against this backdrop, I expect the MPC to leave the policy rate unchanged at 14.5 percent to observe the price dynamics between May and July 2021,” he predicted.

The Bank of Ghana’s current forecast is for headline inflation to return to the target band of 8–10 percent in the second quarter of 2021. However, this could soon be revised in view of recent tax and fuel cost increases.