Inflation is expected to surge to 21.8% in August 2024, IC Securities has predicted.

According to the investment firm, this is due to unfavourable base effect.

However, month-on-month inflation will ease.

“Although the sharper-than-expected deceleration in the July 2024 annual inflation significantly eases our concerns, we remain convinced that the August print will witness an upturn, stressing the need for caution in lower inflation and interest rate outlooks”, it disclosed in its analysis of the outlook of inflation.

It pointed out that in August 2023 it observed an unexpected contraction in the Consumer Price Index (CPI) levels by 0.4 points, which resulted in a 300 basis points decline in annual inflation.

As, such, given the unconventional nature of a CPI contraction in August, it expects an increase in the CPI level for August 2024, albeit a modest rise capped by food harvest.

“We opine that even a slight increase in the August 2024 CPI will nudge annual inflation. Additionally, we foresee upside risk from the spillover effect of the utility tariff hike in July 2024 although the relatively stable Cedi could partly numb the impact. Consequently, we forecast annual inflation at 21.8% (+90bps) while the m/m [month-on-month] rate declines to 0.5% in August 2024”.

Ghana’s headline inflation surprised to the downside with a faster-than-expected decline of 190 basis points to 20.9% in July 2024. It represented the fourth consecutive month of decline in annual inflation and marked the longest streak of disinflation since second-half year of 2023.

Policy rate cut in offing

Meanwhile, IC Securities said the wider real interest rate opens the door for rate cuts but the abundance of caution and Treasury’s borrowing needs will limit the dovish sentiments.

“The inflation outlook remains highly cautious amidst the lingering upside risk, especially with favourable base effect having been exhausted while election related spending is expected in quarter 4, 2024. However, we estimate that the latest disinflation has widened the real interest rates with the ex-post real policy rate at 8.1% in July and the ex-ante real policy rate likely at 7.2% in August 2024.”

It added that this could strengthen a dovish case at next month’s Monetary Policy Rate meeting, albeit with the Monetary Policy Committee mindful of the International Monetary Fund target amidst Treasury’s high financing need.