Inflation subdued ahead of festive season

Consumer inflation shed a marginal 0.01 percentage points in November to reach 8.55 percent, keeping price expectations subdued ahead of a high-spending holiday season.

This should support a neutral stance on monetary policy as the Bank of Ghana’s monetary-policy committee begins its deliberations next week, analysts said.

The central bank has held its policy rate at 12.5 percent since July, as economic activity firmed up and uncertainty surrounded the impact of an announcement of public-sector wage hikes in June.

Food inflation remained below 5 percent, but non-food inflation stayed above single digits, recording 11.08 percent, according to a release from the Ghana Statistical Service (GSS).

Government Statistician Grace Bediako was confident the government’s 9 percent inflation target would be met, despite the potential impact of a demand-surge in December as households increase their spending.

The central bank’s medium-term forecast shows inflation will remain under single-digits by the end of next year, supported by prudent macroeconomic policies that react quickly to emerging uncertainties and risks.

But pressures look likely to build up in the early part of 2012, especially if, as expected, domestic fuel prices are adjusted to cut back on subsidies, which have been ramped up since prices were fixed in January 2011.

Fuel subsidies will cost GH¢364.94 million (US$228 million) this year, Finance Minister Kwabena Duffuor revealed at his budget presentation in November, which projected a fiscal deficit of 5.1 percent for this year and the next.

Analysts and the International Monetary Fund (IMF) have warned against universal fuel subsidies, which drain the public coffers and benefit rich and high-earning urban folk more than the poor, who are most in need of protection.

“While energy pricing has improved, decisive action is needed to tackle the reemergence of costly and poorly-targetted subsidies on petroleum products. Following an initial increase, maintenance of prices at cost-recovery levels will be essential,” the Fund said in a statement.

Meanwhile, the Fund has okayed the government’s effort to source bigger volumes of non-concessional financing to build infrastructure, which the economy sorely needs to maintain recent high-digit GDP growth rates.

But it cautioned that debt-management should be improved, together with better project assessment to optimise the returns on the planned infrastructural investments.

“The government’s plans for scaling up infrastructure investments translate into significant financing needs.

While the debt sustainability analysis suggests scope for higher non-concessional borrowing, and some of the planned projects promise significant returns, a further strengthening of debt management and project appraisal is critical to keep the debt-burden manageable,” the Fund said.