Ghana’s Much Lower Inflation Rate May Not Be Enough to Cut Rates

(Bloomberg) -- Ghana’s new inflation rate, which is below the midpoint of its target range for the first time, may not be enough for the central bank to ease policy just yet.

Annual inflation for August was 7.8%, the Ghana Statistical Service said on Wednesday. That’s the first time since the central bank started pursuing price growth in a band of 6% to 10% in 2013 that the rate has fallen below the midpoint. The rate was calculated after the base year for the consumer price index was changed to 2018 from 2012. The new basket has 307 items compared with 267 before.

Governor Ernest Addison said earlier this month the country is on a good disinflation path and the Bank of Ghana has space to loosen policy thanks to the global move toward lower rates, as long as price growth slows.

While the new number raises the probability of policy being eased “changing only the base year does not influence the underlying price pressures in the economy, so one has to be very careful when interpreting the new figures,” Cobus de Hart, chief economist for west, central and north Africa at NKC African Economics in Paarl, South Africa, said in an emailed response to questions. “What is important though, is the outlook for inflation, and in this regard price pressures are still balanced to the upside.”

The old rate reported for July was 9.4% after price growth started edging upward from a low of 9% in January. Government Statistician Samuel Kobina Annim didn’t provide revised inflation data for previous months and said comparative figures will only be released from next month.

“The new rebased number is lower than anticipated,” Ridle Markus, a Johannesburg-based Africa Strategist at Absa Bank Ltd., said by phone. “Despite the new rebased inflation coming in lower the central bank will still leave rates unchanged given that there are risk associated with the currency and other global uncertainties.”

The central bank is due to announce its policy decision on Friday. Only one of the five economists surveyed by Bloomberg projects a cut, while the rest forecast the rate will stay unchanged at 16%. After a surprise easing in January, Addison said it may be time to consider a lower inflation target, but talk of that has since died down.

“It does take Ghana inflation within the new, lower, range that the Bank of Ghana is likely to start targeting,”” Razia Khan, London-based chief economist for Africa at Standard Chartered Plc, said in an emailed response to questions. “We do not expect any easing to be immediate, as it is only the new series that demonstrates significantly lower inflation.”

--With assistance from Andre Janse van Vuuren.

To contact the reporters on this story: Moses Mozart Dzawu in Accra at mdzawu@bloomberg.net;Ekow Dontoh in Accra at edontoh@bloomberg.net

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Andre Janse van Vuuren

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