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EconomyWed, 22 Jun, 22

Ease In Ghana’s Inflation Signaled - BoG

Ease In Ghana’s Inflation Signaled - BoG

The director of research at the Bank of Ghana Mr. Philip Abradu-Otoo has indicated that ease has been signaled at the rate at which prices of goods and services are rising. Inflation accelerated to 27.6% in May- an 18-year high, compared to 7.5% at the end of May 2021. This has been driven primarily by the pump of the price of petroleum products and its effect on the cost of transportation and food among other items.

Speaking on the theme Monetary Policy, Central Bank Leadership, and Stability of the cedi, at the eighth edition of the UPSA law school’s quarterly banking roundtable, Dr. Abradu-Otoo- who doubles as a member of the Monetary Policy Committee- said data from the first week of June are pointing to a marginal deceleration in the pace of inflation. He expressed his confidence in the inflation easing because of the numbers they have seen for June and how they suggest a likely monthly increase that would be a bit low that may. The central bank’s representative reasoned that this will lead to improved consumer and investor confidence.

The bank’s latest forecast shows a continuing elevated inflation profile in the near term, with a prolonged horizon for inflation to return to the target band. Inflation expectations by consumers, businesses, and the banking sector have also heightened. According to the central bank, risks to the inflation outlook are on the upside and emanate from the availability of inputs for food production, imported inflation, continued upward adjustments in ex-pump petroleum prices and transportation costs, and possible increases in utility tariffs, and potential wage pressures. The second-round effects of these price adjustments are expected to further amplify inflation pressures in the outlook.


Delivering on mandate

The efficacy of the central bank’s primary monetary policy tool – its inflation-targeting framework – has come under scrutiny in recent months as inflation continues on the ascendancy. Introduced in 2007, it seeks price stability by keeping inflation between 6 and 10 percent. Despite some success, it has been called into question for being ineffective in addressing the current wave of inflation, which is predominantly supply-side induced. But offering a defense for the central bank’s approach, its Director of Research said, on the balance of things, the current framework has not only provided relative stability – and in the process outperformed previous models – but has also proved useful in influencing the growth of the real economy.

He explained that there is a bit of misconception when people hear about inflation-targeting, as they think all that is done is chase inflation and neglect real-sector indicators. Casting our minds back to the seventies, we have had the direct control and money supply… If you compare inflation performance under the current regime to the two previous, the volatility has been very minimal except in moments of extreme shocks… even during the pandemic era, it has worked very well as the central bank used tools from this kit to address growth concerns

Expressing optimism that measures being undertaken on the fiscal side will consolidate monetary counterparts, he said the central bank will not relent in its vigilance to ensure there are no slippages.

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