Consumer Price Index (CPI) inflation in Ghana has been projected to hit 8.8% ± 1% by the end of 2020, a Databank Research has stated.

“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 report

In Ghana, the CPI measures changes in the prices paid by consumers for a basket of goods and services.

Inflation trend in 2019 

Inflation ends 2019 lower-than-expected at 7.9%, helped by adjustments in weight allocations to 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. 

Although the re-basing of the CPI and adjustments of expenditure weights dragged inflation below 8% in Q3-2019, higher taxes and utility tariffs together with intense currency pressures in Q4-2019 have pushed up inflation expectations with modest upside risks to the near-term outlook. 

Inflation outlook for 2020

Upside shocks to world market price of petrol and potential depreciation pressures could elevate inflation risks in 2020. 

“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 states. 

A sustained push in world market price of crude oil is a major upside risk to de-regulated ex-pump prices in Ghana, raising the risk to domestic inflation. 

The cedi appears to have started 2020 on a better note (than same period 2019), supported by continued central bank interventions and FX forward auction guidance. 

However, the potential re-emergence of fiscal concerns in the lead up to the general elections in Dec-2020 could disturb market sentiments and drag the GHS, with a sharper-than-expected depreciation posing further upside risks to the inflation outlook. 

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.” 

The continued adherence to zero central bank financing of government deficit should crucially limit the demand-side risks to inflation.