Databank research projects inflation in Ghana to hit about 8.8% by the end of 2020

A Databank research has projected that Consumer Price Index (CPI) inflation in Ghana has will hit 8.8% ± 1% by the end of 2020.

Cedi and dollar notes

The report said that “We also see downside pressures from food inflation as the government’s agricultural policy of planting for food and jobs continues to support food harvest. Against the backdrop of upside risks to inflation, partly offset by downside pressures, we project a year-end 2020 CPI inflation of 8.8% ± 1%.”

The CPI is a measurement of changes in the prices paid by consumers for a basket of goods and services.

Inflation trend in 2019

Ghana’s inflation ended at 7.9% in 2019. This was a lower rate than expected. The inflation rate in 2019 was influenced by the re-based CPI Ghana’s inflation curve (adjusted for the re-based CPI) generally flattened in 2019, depicting a broadly stable inflation environment for the most part of 2019.

The re-basing of the CPI and adjustments of expenditure weights reduced inflation to below 8% in Q3-2019. However, higher taxes and utility tariffs coupled with the intense currency pressures in Q4-2019 have increased inflation expectations with modest upside risks to the near-term outlook.

Inflation outlook for 2020

In the report, Databank said “We expect the upward pressure from the tax measures implemented in Q4-2019 to start diminishing from the CPI over the next 3-months, especially with the expectation of a favourable exchange rate performance in Q1-2020. The recent geopolitical tensions between the US and Iran have rattled crude oil prices, pushing Brent price to ~$70pb in early Jan-2020.”

“Although a moderation in tension has pulled prices back to the mid-$60s, we reckon the market remains on a knife-edge as further escalation cannot be completely ruled out,” the report added.

The cedi started 2020 on a better note as compared to the same period in 2019. This is because of the interventions by the Bank of Ghana and FX forward auction guidance.

But the possible re-emergence of fiscal concerns in the lead up to the general elections this year could stress the market and the cedi.

The research expects “an elections-related push to public expenditure as another potential source of demand-pull inflation in 2020. Notwithstanding the perceived upside risks, we expect CPI inflation to remain contained in single digits throughout 2020 as the central bank works to consolidate policy credibility.”

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