After shooting into the double digits space in April, inflation rate has return to its single-digits figures as data from the Ghana Statistical Service indicate the general price levels of goods and services for November 2020 increased by the rate of 9.8 percent, thereby, bringing inflation to its lowest rate since the pandemic started impacting prices.
Prior to April this year, inflation had been in the single-digit space since July 2018 and further stayed flat at 7.8 percent for three consecutive months beginning January 2020. However, impulse and panic buying ahead of the lockdown announcement precipitated prices of goods and services to shoot up astronomically, thereby, pushing inflation to hit a double-digit figure of 10.6 percent in April 2020.
Following this development, prices continued to spike, largely catapulted by increase in food prices and other essential supplies needed to fight or contain the spread of the pandemic. However, the GSS data shows that food inflation has declined to 11.7 percent compared with 12.6 percent the previous month. Non-food inflation, on the other hand, remained constant at the 8.3 percent recorded in October. Inflation for locally produced items was 11.5 percent; while that of imported items was 5.6 percent for November.
The decline in inflation ahead of the next Monetary Policy Committee’s (MPC) meeting in January 2021, may trigger a decision to reduce the rate, should the disinflation process continue, as the committee has already signalled that in an engagement with the press in November last year.
But one thing which remains a threat to the probability of such outcome is the depleting fiscal situation which government attributes to the pandemic’s impact. In fact, the MPC acknowledges it may delay any probable reduction in the rate should the deficit figures continue in this trajectory.
“Fiscal policy has been a source of considerable stimulus, driven by exceptional expenditures directed towards goods and services, capital expenditures, COVID-related spending, and in the energy sector. As at July 2020, the budget deficit was higher than programmed. Indications from banking data point to a faster budgetary execution in August relative to the annual target of 11.4 percent of GDP, supported by exceptional domestic and foreign financing sources.
The drivers of economic growth are returning to normal with prospects for a good recovery. Monetary and fiscal policies have been supportive, providing the necessary underpinnings for the economy to withstand the negative output shock arising from the pandemic. However, this has come at the cost of moving away from the consolidation path and could pose a risk to long-term macroeconomic stability if decisive measures are not taken to define a feasible fiscal adjustment to stabilise debt,” the committee said its last report.