Talks of a Lower CPI Target in Ghana Seen as a Little Premature

ACCRA (Capital Markets in Africa) – With Ghana’s inflation rate barely in single digits, the central bank’s suggestion that it’s time to aim even lower may be premature.

Price growth has been inside the target band of 6 percent to 10 percent for only nine months after years of double-digit inflation and would have to remain there for much longer to convince investors a lower rate is sustainable, according to economic analysts including Databank Group’s Courage Boti. Chasing an even lower target may also require tight monetary policy, which could throttle economic growth in the West African nation.

“Some level of inflation is good for the economy,” Boti said. “Ghana can derive the needed economic activity, growth and employment creation if it can sustain the current inflation for five to six years.”

Inflation quickened to 9.4 percent in December after reaching a record low in November. The January data that’s due on Feb. 13 could look very different because the statistics office will use a new base year for the index.

Governor Ernest Addison said a lower inflation target would make the economy more competitive because its trading partners have much slower price growth than Ghana’s. But Lord Mensah, a senior lecturer in finance at the University of Ghana Business School, said the nation’s inflation rate can’t simply be compared with that of its peers because there are different factors in play in every economy.

“We have to wean ourselves gradually into the lower inflation target,” Mensah said. “It’s a process, it’s not an event.”

What Our Economist Says …
“It makes sense for the Bank of Ghana to try to push down expectations by adopting a lower target after it has got a handle on double-digit inflation. The central bank could have waited until the new rebased CPI series was released to give better clarity about the inflation outlook.”

Source: Bloomberg Business News