Measured over a certain period, inflation is the rise in the cost of goods and services. High rates of inflation can reduce buying power, which slows economic development since consumers can purchase less for the same amount of money. We’ll examine this in more depth later on. This may have detrimental economic implications.
In October 2023, Ghana’s annual price hike rate dropped from 38.1% in September for the third month in a row to 35.2%, the lowest level in 14 months. However, the headline inflation rate is still far higher than the 6%–10% goal range set by the central bank. Food costs decreased (to 44.8% from 49.4% in September) as did non-food costs (to 27.7% from 29.3%).
Consumer prices increased by 0.6% month over month in October, decelerating from a 1.9% increase in the previous month. The Ghanaian cedi has been continuously declining since August, and this trend is still influenced by the strong demand for the US dollar. Still, reserves are anticipated to rise and the home currency will be supported by the second tranche of the IMF rescue package later this year.
Ghana: As a percentage of GDP (as of the prior year) from 1987 to 2028
Characteristic Inflation rate compared to the previous year
2024* 23.16%
2023* 42.19%
2022 31.89%
2021 9.98%
What is the Ghanaian inflation rate?
![Inflation](https://cashclues.info/wp-content/uploads/2023/12/Independence_Arch_-_Accra_Ghana1-1024x768.jpg)
Ghana’s inflation rate is still rising at the moment, but economists believe that it will start to slow down in 2023. Numerous variables influence Ghana’s inflation rate, and several components go into calculating inflation. Among these components are maybe the following:
- Prices for groceries are rising
Food prices rose, leading to panic purchasing when the country went into lockdowns due to COVID-19 in 2020, even though food is normally omitted from “core” inflation calculations. This was the primary source of Ghana’s inflation rate. Even though it started to decline, Ghana’s escalation rate shot through the roof in the middle of 2021 as a result of problems with oil prices, avian flu outbreaks in several of the country’s food-producing regions, and climate change delaying rainfall. Ghana’s inflation rates were impacted by the rise in food prices since some items were more expensive and more difficult to get.
- Fall in the value of the Cedi
The Cedi, the currency of Ghana, is now one of the poorest-performing currencies in the world due to its devaluation versus the US dollar. This is one of the primary causes of Ghana’s price escalating rate. Increases in import prices must be passed on to domestic consumers due to a weaker currency, which puts more strain on the already high expenses of food and transportation. Further factors contributing to the devaluation of the Cedi include the COVID-19 pandemic’s impacts and rising oil prices worldwide.
- Dangerous political situation
The opposition has called for the ouster of incumbent Finance Minister Ken Ofori-Atta because of his management of the country’s financial crisis, citing heightened political differences between the incumbent New Patriotic Party and its opponents. Political risks, conditions, and instability may have a significant effect on both interest and price hike because they influence the amount of money a government can borrow when it needs it. Ghana has begun to take on debt to control inflation during the past year, and this might lead to more debt, which would have an impact on political discourse.
- High rates for commodities
Commodity prices are a good way to assess inflation risks and can often be used to forecast inflation or deflation. However, elevated commodity prices worldwide can also contribute to elevated levels of inflation.
Crude oil prices increased sharply worldwide following Russia’s invasion of Ukraine in early 2022, but oil is one of Ghana’s main export revenue streams, and the country’s rising petroleum prices are creating inflation and driving up energy prices. The rise in local petrol station prices and overall transportation costs, which have an impact on additional variables like food supply chains, provide additional reasons for Ghana’s present inflation rates. International increases in crude oil prices also play a role in this.
How is the Ghana Cedi’s exchange rate impacted by inflation?
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Modifications in one affect the other because of the strong relationship between inflation and currency exchange rates. The Ghanaian cedi has lost over half of its value about the US dollar in the past year. The Ghanaian Cedi depreciates against the US dollar because imported items are valued in US dollars.
As a result, an increase in inflation makes the same amount of Cedi less valuable than it was previously. Since the perceived attractiveness of a certain currency typically influences exchange rates, a decline in the ability to purchase that currency causes a decline in desirability, which in turn lowers the exchange rate.
What reasons exist for the devaluation of the Ghana Cedi?
Black market activity, financial speculation, and “low inflows of foreign exchange” are the reasons behind Ghana’s currency devaluation, according to President Nana Addo Dankwa Akufo-Addo.
The currency exchange rate reflects cost distortions brought about by black market activities since depreciation is a result of supply and demand changes. Through unreported taxes and illicit business, it also has an impact on the economy. Because foreign governments become less motivated to approve more borrowing due to a lack of faith in the currency, speculation about declining currencies can accelerate future devaluation.
Different emotions have been triggered by the revelation that the rate of inflation in March 2023 is dropping. Despite a decline over the last two months, the current 45 percent inflation rate is still above the Bank of Ghana’s top policy objective by more than four times. High inflation has plagued Ghana since the middle of 2021, significantly raising living costs and making it difficult for those on low incomes to cover their basic needs.
By the conclusion of this quarter, the global macro models used by Trading Economics and experts estimate the country’s inflation rate will be 31.00 percent. According to our econometric models, the Ghana Inflation Rate is expected to trend at 15.00 percent in 2024 and 12.00 percent in 2025.