The Middle East crisis has significantly affected global fuel and other import prices. Between March and September this year, headline inflation increased by two percentage points, while aggregate food inflation rose by 1.7 percentage points. These figures suggest that the managers of the Ghanaian economy are on the right path toward price stabilisation.

Indeed, the economic management team has been heavily leveraging the USD/GHS exchange rate as a transmission mechanism to maintain this stability. However, if the Middle East crisis is prolonged for several months, and if Brent crude and refined petroleum product prices, especially, remain high, this stabilising trend can be expected to reverse. Consequently, Ghanaians must prepare for another prolonged episode of sharp currency depreciation, similar to what was witnessed at the onset of the Russia-Ukraine war, which would inevitably cause huge spikes in aggregate food inflation.

As a specialist in Applied Econometrics and Agribusiness, I have spent a considerable amount of time assessing these potential inflationary pressures on local food prices since the escalation of the US-Israel-Iran conflict.

Food inflation volatility

Over the past three decades, Ghana’s food market has become highly volatile. Observation of Ghana’s food inflation data spanning this period has revealed very interesting facts. Food inflation is averaging around 8.9% over the long run, with a baseline volatility of 4.9%. Food inflation has gathered strong momentum in recent decades; a high inflation rate in one month heavily influences a high inflation rate the next. I also observe that random monthly economic shocks have a lingering effect on the immediate subsequent period, and seasonality no longer significantly affects food inflation. Approximately 18.24% of a given month's unexpected inflation shock is instantly carried over as increased uncertainty and price volatility the following month. Furthermore, about 81.65% of the previous month's volatility carries over directly into the current month. Ultimately, these volatility shocks are highly persistent and dissipate very slowly over time.

Seasonality in the food market

The nation experienced major price shocks in 2001 and 2023, with a long period of stability between the two crisis periods. The historical food inflation hike in 2001 (76.8%) was significantly higher than the recent spike in 2023 (61%). During December, September, February, November, October, January, and June, food prices are slightly higher than the yearly average. Conversely, during August, April, May, March, and July, food prices are slightly lower than the yearly average. The month of December typically pushes food inflation up by approximately 0.26 percentage points, while the month of August pushes it down by approximately 0.20 percentage points.

Evidence of a new food inflation regime

Ghana’s food markets may be experiencing a new inflation regime-or what economists call a structural break. Since 1999, Ghana’s food inflation has experienced two unexpected, permanent shifts: first in 2004 and again in 2022. External shocks and macroeconomic policy interventions triggered both shifts, creating three distinct eras of food inflation between 1999 and 2026. The first regime lasted 65 months (January 1999 to May 2004), the second spanned 213 months (June 2004 to February 2022), and the most recent regime began in March 2022. This observation is critical for agricultural policy, as interventions that rely on outdated relationships will likely fail if they do not account for these structural breaks.

Impact of fuel prices on food inflation

Historically, Ghana’s food inflation has experienced a nuanced relationship with key variables like energy and the exchange rate. In the short term, food prices in the country shoot up rapidly like a rocket when ex-pump diesel prices rise, but drift down slowly like a feather when fuel prices drop. For instance, within the same month, a 1 GHS spike in diesel prices triggers an aggressive pass-through, increasing food inflation by 1.67 percentage points. Conversely, a 1 GHS decrease in diesel prices results in a much weaker downward movement, dropping insignificantly by only 0.46 percentage points.

Similar to diesel, whenever petrol prices go up, food inflation shoots up like a rocket. Within the same month, a 1 GHS increase in petrol prices can trigger a surge of 1.41 percentage points in food inflation- representing an immediate, aggressive pass-through. Conversely, when petrol prices drop, food inflation drifts down slowly and invisibly like a feather. This downward pass-through of 0.27 percentage points is so weak and uncertain that it is statistically insignificant, confirming that market vendors in Ghana rarely lower food prices when fuel becomes cheaper. Additionally, the data show strong inflation inertia: a 1 percentage point increase in the previous month's food inflation automatically carries over to increase the current month's inflation by 0.49 percentage points.

Micro-level evidence of erosion of cocoa farmer purchasing power

To demonstrate how recent upticks in month-to-month inflation manifest on the ground, one can look at its direct impact on the purchasing power of cocoa farmers—a critical source of Ghana's foreign exchange earnings. In July 2026, an initial assessment indicated that the government needed to adjust the cocoa producer price upward by approximately GHS 1,000 to compensate for severe purchasing power losses recorded in the first half of the year. Although this adjustment has recently been implemented, its arrival may be too late to shield farmers from the fresh wave of inflation triggered by ongoing geopolitical tensions in the Middle East.

When the government reduced the producer price in February 2026 from GHS 58,000 to GHS 41,392 per tonne, farmers suffered an immediate 29% loss in purchasing power relative to the January baseline. Subsequently, purchasing power eroded by an additional 1.38% leading up to the recent policy intervention, which raised the price by GHS 1,008 per tonne. While this upward adjustment marginally improves cocoa farmers’ purchasing power by roughly 2% relative to the February 2026 price, it falls short of compensating for the steep losses sustained since January. Crucially, this modest 2% gain remains highly fragile and could be swiftly eroded by mounting inflationary pressures from expensive crude oil and refined petroleum products.

Exchange rate stability: the fragile anchor

During this period of global oil price shocks, the Bank of Ghana and the Ministry of Finance are heavily leveraging the USD/GHS exchange rate as a transmission mechanism to stabilise ex-pump fuel prices. Whether this coordinated approach is largely driven by monetary or fiscal policy, it appears to be working effectively to tackle food inflationary pressures from the crisis. However, high Brent crude oil prices inevitably exert severe currency pressures, which could trigger sustained spikes in food inflation. If Brent crude and refined petroleum products remain expensive, they will automatically trigger a sustained scramble for US dollars in the forex market. Consequently, the country must prepare for another prolonged episode of sharp currency depreciation, similar to what was witnessed at the onset of the Russia-Ukraine war.

Historically, Ghana has been heavily dependent on imports of crude oil and refined petroleum products, meat, rice, among others. Therefore, if the country does not curb the imports it can control and better allocate its scarce forex reserves, history may repeat itself. For example, let us look at meat imports into the country. I estimated two composite index trading models to track the historical performance of Ghana’s meat imports and local production using official figures from MoFA. I observe that Ghana's frozen meat imports composite index for the period 2020 to 2024 shows a sharp rise of 5,600 basis points (56% growth rate), with poultry alone weighing 87%.  By comparison, my performance tracking index for local meat production rose slowly by 2,900 basis points (29% growth rate) for the period 2015 to 2024.  So, we can expect that the Agriculture Minister has a lot to do to reverse the heavy reliance on imports in order to reduce the pressures on the currency.

The price of Brent crude oil exerts direct and significant pressure on the Ghanaian Cedi (GHS) against the US Dollar (USD). An analysis of Ghana Statistical Service (GSS) and Bank of Ghana (BoG) data spanning the July 2015 to June 2024 sample window yielded an interesting observation. It can be expected that changes in global oil prices will take nearly five months to pass through to the local foreign exchange market. Specifically, across the full sample period, the Cedi-USD exchange rate exhibits a significant response, depreciating by GHS 0.16 for every $1 hike in the Brent crude price.

The structural relationship between global oil prices and the Ghanaian Cedi has fundamentally shifted over the last few years, driven by global crises and macroeconomic policy changes. For instance, the May 2021 global oil price spike triggered a massive chain reaction that severely fractured the Cedi's stability between March 2021 and November 2022. Should the escalating crisis in the Middle East continue to drive crude prices upward, the fragile exchange rate stability Ghana has recently achieved could rapidly erode. This vulnerability threatens to plunge the economy back into a painful cycle of currency depreciation and prolonged food inflation. To insulate the nation during this crisis period, the government must aggressively curb non-essential imports and optimise the allocation of our scarce foreign exchange reserves.

AUTHORED BY DR. DANIEL NINSON

SPECIALIST IN APPLIED ECONOMETRICS AND AGRIBUSINESS

EMAIL: NINSONDANIELGH@GMAIL.COM

PHONE: 0243004405