The upward Inflation is expected to linger over the next two months, as a result of the implementation of the three new taxes in May 2023.

The taxes - Excise Duty and Excise Tax Stamp (Amendment) Bill, 2022, the Income Tax (Amendment) (No. 2) Bill, 2022, and the Growth and Sustainability Levy Bill, 2022 were passed by Parliament in April 2023.

In a report on 'Ghana’s May 2023 Inflation: Surprised but not Shocked', IC Research said while the 1.0% increase in headline inflation was unexpected, it was not shocked by the outturn.

“While the 100 basis points increase in headline inflation was unexpected, we were not shocked by the outturn as our April 2023 inflation update – Cut the Mustard – already flagged the elevated near-term risk. This higher risk perception, albeit underestimated, underpinned our more conservative forecast decline of 110 basis points (vs the average market expected decline of 420bps)”.

It mentioned that the doubling of the month-on-month inflation in May 2023 emphasises the unfavourable price effect of the new taxes amidst the seasonality in agricultural supply, adding “In our view, this pressure could linger over the next 2-months mainly due to our expectation that producers and distributors would stagger the price adjustment amidst the softening demand conditions”.

June 2023 inflation

The report did not rule out another uptick in June 2023 inflation.

“Consistent with our view that the near-term outlook is clouded by elevated price expectations from the IMF-supported price sensitive measures, we foresee a spillover of price pressures into June 2023. We believe producers and distributors are in the process of gradual price adjustments to reflect the impact of the new taxes which took effect on May 1, 2023. Furthermore, the Public Utilities Regulatory Commission (PURC) hiked tariffs for electricity (18.4%) and water (9.0% – 15.0% across residential and non-residential consumers) with effect from June 1, 2023.”

Increase in inflation in some services sector

Again, it said a look at the non-food inflation dynamics observed that the 80 basis points decline in the non-food inflation rate may have concealed the rise in inflation for some services.

Notably, it observed higher inflation for Education services (10.5% | +3.4 percentage points), Health (33.6% | +4.9pp), Personal care (53.4% | +4.9pp), Recreation (29.2% | +2.1pp), as well as Information & communication (16.1% | +2.1pp).

“Our analysis revealed that these services items account for more than one-third of the 56.3% weight assigned to the non-food inflation group. Discounting the downshift in inflation rate for utilities, housing, gas & other fuels suggests that core inflation, which reflects underlying price pressures, probably went up in line with headline inflation for May 2023”, it added.