The situation has impacted negatively on businesses as business owners also have to grapple with high cost of borrowing and high taxes.
Business Finder’s analysis of Ghana’s inflation history from 2012 revealed that average inflation rate for the first eight months of 2012 was 9.1 per cent while for the same period in 2016, average inflation is 18.3 per cent.
For 2013, average inflation rate for the first eight months increased to 11 per cent and further increased to 14.8 per cent for the same period in 2014.
Inflation rose further to 16.9 per cent (average of first eight months) in 2015.
In its attempt to curb the rising rate of inflation the Bank of Ghana (BoG) increased its policy rate from 24 to 26 per cent and maintained it for nine months.
Even though there was a drop from 18.4 to 16.7 per cent in July, inflation picked up again to 16.9 per cent in August 2016.on the back of high cost of housing, utilities as well as transport.
Trends in inflation (January 2012 – August 2016)
Ghana’s Statistical Service (GSS) however attributed the rise in inflation to its suspicion that traders were hiking prices because they feared the cedi would struggle against the US dollar ahead of the general elections in December.
An analysis of the trend of inflation in Ghana between 2012 and the first half of 2016, by Groupe Ndoum (GN) Research revealed what GN described as a mismatch between government fiscal policy and tighter monetary policy stance administered by the Bank of Ghana which had made it “very difficult to control inflation.”
“Inflation has risen since February 2013 with no clear solutions in sight. The first half of 2016 was no different as inflation hit a six-year high of 19.2 per cent before scaling down to 18.4 per cent in June 2016,” GN Research observed.
Meanwhile the Research body is projecting an end year inflation of 17 per cent against government’s 10.1 per cent.
Economists and analysts who spoke to this paper described the trend as one that clearly explained the crisis in which the Ghanaian economy had found itself.
“The statistics tell it all that we are in difficult times,” they noted.
Senior Lecturer at the University of Ghana Business School, Dr Lord Mensah said “this shows how managers of the economy are clueless in dealing with the economic crisis facing the country.”
Dr Mensah was unhappy with the situation, stressing that the high cost of credit due largely to the high policy rate was impacting negatively on the economy and was largely responsible for the lack of growth.
The Institute for Fiscal Studies (IFS) has consistently pointed out that the kind of inflation in Ghana is not demand-driven and will therefore not yield to the BoG’s strategy of policy tightening.
The Institute has been asking “how come that in spite of all the tightening, we haven’t seen inflation fall”?
Inflation in Ghana, the IFS maintains “has not been driven by demand; rather we have been grappling with cost push inflation- energy crisis, the exchange rate and utilities among others.”
According to the Institute, the high inflation, tight central bank policy stance, and high level of government activity in the debt market have kept interest rates high.
It said although government had stuck to its end-year inflation target of 10.1 per cent, the mid-year budget failed to indicate how that target could be attained.
Historically, in an election year, the central bank’s policy rate has hardly been reduced, partly because there is always some nervousness about how the fiscal side will pan out.
With over 60% of businesses not ready to employ or intending to lay-off some workers due to the high cost of business operation (AGI, 2016), low commodity prices and bloating government debt stock, we anticipate tough times ahead.
“This is also expected to tumble the demand for government and corporate bonds as investors remain sceptical about future inflation outcomes which obviously erode their returns, GN Research stated.
By Isaac Aidoo