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Rise in global inflation is a contributory factor to Ghana’s price increases says Dr Frank Bannor

Ghana, according to Dr Frank Bannor, wasn’t the only country faced with inflationary pressures, developed economies faced similar challenges

Head of Research at the Danquah Institute (DI), Dr Frank Bannor, has averred that Ghana’s economy, just like the rest of the world, got hit hard by the rise in global inflation.

In a press conference held on Tuesday, 13 February 2024, titled; ‘Analysis of the Ghanaian Economy’, the development economist pointed out that but for the global surge in inflation as a result of the war waged on Ukraine by Russia, and other extraneous factors, Ghana’s economy, just like the rest of the world, wouldn’t have witnessed high levels of inflation.

“For a continuous period of 61 months, the inflation level was below 15.4% in December 2016, he pointed out.

“The only exception to this trend occurred in February 2022, coinciding with Russia’s invasion of Ukraine. It is noteworthy that, global inflation surged from 1.55% in 2016 to 8.27% by the end of 2022, marking a fivefold increase”, he noted.

Notably, there has been a general rise in living expenses worldwide, propelled by escalations in food, energy, housing (rental), and transportation costs, according to Dr. Bannor.

By February 2022, he stressed, “Ghana experienced inflation reaching 15.7%, a figure that steadily increased and eventually peaked at 54.1%, marking the highest rate in over two decades”.

Ghana, according to the Economist, wasn’t the only country faced with inflationary pressures, even the developed economies faced similar challenges.

“Ghana wasn’t the only country facing such challenges. In June 2022, headline inflation in the USA increased by 9.1%, marking its highest level in 40 years”

The UK, he continued, experienced a four-decade-high inflation rate of 9.1% in May 2022, while Germany recorded its highest inflation in 50 years in August 2022.

While DI acknowledges the accompanying hardships of inflation, it is crucial for the country to recognize the factors contributing to these increases, he stated.

“Under normal conditions, and without any global shocks, inflation consistently decreased between 2017 to 2019— a trend that had been persisting for a continuous period of 61 months”

It is also true in this case that inflation has since exhibited a notable downward trajectory, decreasing from 54.1% to 23.2% by December 2023, according to the Bank of Ghana.

He also touched on the contribution of exchange rates in the inflation discourse.

“Friends from the Media, Exchange rate fluctuations are an important driver of inflation and could therefore have significant implications for the formulation of monetary policy. The expected impact of currency movements on consumer prices will determine how BoG, should react to them” he said.

He explained that a change in the exchange rate will affect production costs given that most inputs are imported, thus resulting in higher prices for final goods.

In the case of an open economy like Ghana, which extensively participates in global trade, the exchange rate holds significant economic relevance, Dr. Bannor indicated.

Dr. Bannor provided figures on the Cedi/Dollar dichotomy to buttress the point made by Vice President Bawumia in his recent speech.

“On the 7th of January 2013, one US dollar was exchanged for GHS 1.8725 (interbank exchange rate). However, by the 7th of January 2017, the exchange rate had increased to GHS 4.2141 for 1 Us dollar. On the whole the average depreciation of the cedi against the dollar was 17.7% from 2013 to 2016 as Dr Bawumia articulated in his delivery.

From 2017 to 2020, he noted, there was a notable reduction in the cedi depreciation rate to an average of 7.5%. Furthermore, the average cedi depreciation continued to decrease to 6.8% between 2017 and 2021.

“The Ghana cedi experienced a significant depreciation of 30% by the end of 2022, pushing the average cedi depreciation between 2017 and 2022 to 10.75%”

Dr. Bannor also pointed out that the Ghana cedi was not the only currency to have lost steam in the face of the global economic downturn, citing the Pounds Sterling losing against the US Dollar as an example.

“During 2022, many major international trading currencies, including the UK’s pound sterling, depreciated against the US dollar” he said.

As an Institute, we recognize the economic challenges that the persistent depreciation of the cedi in 2022 imposed on Ghanaians. Why this happened is what we must look at, he urged.

Before the global crises emerged, specifically at the close of 2021, the Bank of Ghana boasted over $9.9 billion in gross international reserves, equating to 4.8 months of import cover.

This, he said, marked one of the highest reserve levels since 1957. This is in stark contrast, to the 2.8 months of import cover that remained as of December 2016.

Such a fragile economy would have struggled to withstand the profound impacts of the recent global economic crises, he added.

“The exchange rate for one US dollar could likely have exceeded GHc25 and we are prepared to engage in an academic debate on this matter!!” he threw the challenge.

“Following the war(Russia/Ukraine), the global market witnessed a downturn, resulting in the persistent downgrade of numerous economies, Ghana included” Dr. Bannor held.

Unable to access the global bond markets, the Bank of Ghana had to utilize the country’s reserves to settle the government’s foreign-denominated debts.

Simultaneously, the Central Bank supplied dollars to the secondary forex market to bolster the value of the local currency.

“By June 2022, it became obvious that our reserves were fast depleting, resulting in an urgent need to go to IMF for a bailout” he emphasized.

Reporting by Wilberforce Asare in Addis Ababa

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