Re : Stop this inflation propaganda -NPP

Sun, 18 Jul 2010 Source: Sulemana, Iddisah

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I read the press statement on the headline above (Ghana Web, July 14, 2010) with ambivalence. It came from the Communications Director of the NPP, Kwaku Kwarteng. Apparently, I was shocked, to the extent that I failed at ignoring some flaws in the statement. I am going to try to objectively clarify some of these flaws.

The statement said “The NDC Government has just rushed to the media to praise itself for reducing June inflation to 9.52 percent. This is misleading and unfortunate”. I seriously don’t see how the “praise” is misleading and unfortunate. The government committed itself to reducing fiscal deficits and fighting inflation. If single-digit inflation has been recorded, then the government is living, at least on this count, to its promise. Maybe the government does not have to praise itself. However, it (the government) could just be the lizard that fell from the tall iroko tree, praising itself even if no one else did!

Do we have confidence and faith in our state agencies? Do we truly believe in the independence of the Ghana Statistical Service (GSS)? The June, 2010 inflation rate was released by the GSS, and I believe it is undoubtedly authentic. There is no political maneuverings in this. If the inflation rate were NDC-cooked, we could disregard it. However, it is from an independent state institution. To be honest, we should be impressed by this particular achievement, our political affiliations notwithstanding.

I understand that, as opposition, the NPP does not have to rejoice in falling inflation. After all, the NPP is not the first opposition party to not commend an incumbent government for a job well done. When the NDC was in opposition, they criticized many worthwhile policies that were proposed and implemented by the NPP government. So it is only normal. Let me remind readers that the figure in question (9.52%) is not a “year-on-year” inflation rate as held by Mr. Kwarteng (and the NPP by extension). It is the rate for June, 2010. We cannot know the actual year-on-year inflation rate until the end of the year (or early next year).

I concur with Mr. Kwarteng on his conviction that a “drop in inflation is helpful if it is driven by increases production”. Certainly! Recently, the Center for Policy Analysis (CEPA) warned the government of sacrificing output for inflation reduction. And Kwarteng’s assertion is not at dissonance with this caution. However, Kwarteng’s maize example to buttress his point is flawed. Inflation is measured based on a market basket of goods and services, and maize is just one of the many constituents of that market basket. If we have a bumper harvest for instance, and the price of maize goes down, whilst the prices of some of the commodities in that basket rise, we will not necessarily see inflation go down. My point is a reduction in the price of maize is not a guarantee that inflation would decline. More so, prices of goods and services do not have to reduce for inflation to decline. Inflation is just a rate of change; so that it could be falling even if the general price level is rising. A decline in inflation does not mean that prices are falling (as we popularly believe). It just means that the magnitude/rate by which prices rise is reducing.

The statement attributes the decline in inflation to government’s refusal to spend. It is fallacious to wholly attribute the decline in inflation to a lack of government spending. The Bank of Ghana (BoG) is also very busy pursuing its measures through monetary policy in fighting inflation. How many times has the BoG not reduced the prime rate since NDC took over power? Again, BoG is an independent institution we can and must trust. Perhaps, a greater chunk of the credit from the plummeting inflation we are realizing should be given to the BoG. They have shown a commitment to stabilizing prices, and need to be commended. We should not allow the government alone to claim the glory.

If a presidential pledge is anything to go by, then we have to remember that President Mills has pledged to the good people of Ghana to reduce fiscal deficits. So it is not out of place that his government is not spending “profligately”, in his own words. Our concern, however, should be whether this inflation reduction is sustainable? For how long can the government continue to pursue fiscal restriction?

I share in Kwarteng’s position that the government should “deliver improvements to the people’s lives”, hopefully by way of spending to create employment for the people, *inter alia. *Government spending is one good way of putting smile on the face of the people, and so eschewing this responsibility is dicey.

Hopefully, someday in the future, our politicians would be able to give credit where credit is due.

God bless Ghana!

Iddisah Sulemana

*(The author holds a Master’s Degree in Economics from the University of Akron, Ohio, USA. He can be reached at iddisah@gmail.com)*

Columnist: Sulemana, Iddisah