“There are a few things that are going on in Ghana in inflation data. The index that we’ve now got has been rebased to last year and so we’re seeing changes in the overall composition of the basket,” London Standard Chartered Bank head of Africa research Razia Khan told CNBC Africa on Wednesday.
“Interestingly, with the release of the previous month’s inflation data, the statistics office in Ghana released some of the back data this year. Unlike the very pronounced impact that we saw from the bigger February fuel adjustment on Ghana’s inflation data, it’s not really that evident with the new rebased rerated data.”
The additional fuel price adjustment in Ghana in May was relatively small compared to the 20 per cent fuel price hike earlier this year and Khan expects the inflation rate to rise even more following the fuel price pressures.
Because Ghana is now working with a rebased and rerated CPI index, it has become difficult to determine how much higher to go because of a lack of historical context on which to base a possible rate increase on.
Ghana’s weakening currency also adds to the difficulty. The cedi is down 6.9 per cent year to date and continued pressure will also likely push inflation towards an upward trend. The adjustment of utility tariffs will also have a significant effect in future.
“The majority of influences do seem to indicate inflation goes higher. How much higher is difficult to say at this point,” added Khan.
Despite the pressure that the cedi saw in the first half of last year it had a minimal effect on inflation.
It is anticipated that the new index will start to give a more accurate idea of the feed through of exchange rate weakness into inflation.
“If inflation continues to climb, if the Ghana cedi remains pressured, then that might change the outlook further out for the Bank of Ghana’s prime rate,” said Khan.