Can Ghana sustain inflation slowdown?

Ghana's headline inflation rate has shown a slight decline, dropping by 80 basis points to 25 per cent in April this year, according to data from the Ghana Statistical Service. Benjamin Boachie, Chief Economist at Secondstax, shared his insights on the inflation trend and the potential next moves ahead of the next Monetary Policy Committee meeting in a recent interview on CNBC Africa. While the decrease in headline inflation is a positive development, Boachie expressed some concerns regarding the underlying trends. He noted that while food inflation was the main driver behind the decrease, non-food inflation actually increased, indicating that the effectiveness of the hawkish stance taken is not as expected. Boachie highlighted the importance of looking beyond the headline number to understand the full picture of the inflation dynamics. Despite these concerns, he remains hopeful that the momentum can be sustained in the upcoming readings. Boachie attributed the restrictive financial conditions in Ghana, with a policy rate of 29 to 30 per cent, as a key factor that could lead to further decline in inflation over the near to medium term. He praised the efforts of both the monetary and fiscal authorities in addressing the inflationary pressures and broader economic challenges facing Ghana, particularly in light of the constraints imposed by international bodies like the IMF. Boachie emphasized the importance of continued policy discipline, especially in an election year, to stabilize the economy and set it on a path to recovery. Looking ahead to the next Monetary Policy Committee meeting, Boachie pointed out the concern regarding the transmission mechanism of higher rates, which does not seem to be effectively reducing core inflation and non-food inflation. He urged for a closer monitoring of these dynamics to ensure that inflation remains within the target range. Globally, Boachie highlighted the actions of the US Federal Reserve and neighboring Nigeria, which implemented significant rate hikes in the first quarter of the year. He suggested that Ghana's monetary policy decisions in the second and third quarters would depend on the incoming data. Boachie anticipated that the policy rate in Ghana is likely to remain high in the short term, given that inflation is still above the target band. He projected that a substantial reduction in the policy rate may not happen until the third or fourth quarter as the country continues its efforts to bring down inflation.