Inflation rises to 23.5% in January 2024

Consumer inflation rose to 23.5 percent in January 2024, up from December’s 23.2 percent, signalling an end to the five-month-long disinflationary trend that commenced in August 2023.

Data from the Ghana Statistical Services (GSS) indicates a marginal 0.3 percent increase, raising concerns about the anticipated surge in inflation expectations for March 2024.

The notable increase in January’s inflation was primarily driven by non-food inflation surging from 18.7 percent in December 2023 to 20.5 percent in January 2024. Key contributors to non-food inflation include clothing (23.9 percent), alcoholic beverages (39.7 percent), electricity, gas and other fuels (35.9 percent), accommodations (37.9 percent) and personal care (32.8 percent).

The month-on-month inflation between December 2023 and January 2024 was 2 percent, the highest since July 2023, when it stood at 3.6 percent.

Food inflation stood at 27.1 percent, with vegetables, tubers, plantains, cooking bananas and pulses leading at 35.8 percent, while cocoa tea marked the lowest in this category. Both food and non-food inflation witnessed significant decreases by 33.9 percent and 27.3 percent, respectively, emphasising the disinflation.

Cumulatively, inflation had dropped 30.4 percent throughout 2023, with an average inflation rate of 39.91 percent. This decline was attributed to the tight monetary policy controls by the Bank of Ghana, a relatively stable local currency and, notably, higher base drift effects.

This latest inflation data could prompt the central bank to maintain a restrictive policy stance until there is a clear sign of inflation abatement. Despite the central bank’s initial policy rate reduction to 29 percent during its first meeting of 2024, further rate cuts would require sufficient evidence amid lingering risks, as the headline inflation figure remains above the 10 percent ceiling (2.35x).

The Monetary Policy Committee’s (MPC) January meetings indicated that the disinflation process is expected to continue, with headline inflation projected to ease to around 13-17 percent by the end of 2024, gradually returning to the medium-term target range of 6-10 percent by 2025. However, the committee highlighted upside risks to the inflation outlook, stressing the need for strict implementation of the 2024 Budget and a tight monetary policy stance.

The latest inflation figure has the potential to disrupt the declining trend in yields on the Treasury market, with the 91-day T-bill experiencing a 30 basis points drop to 28 percent. The 182-day and 364-day yields followed suit, contracting by 36 bps and 40 bps, settling at 30.44 percent and 31 percent, respectively.

Despite some fiscal discipline under the IMF economic programme, election-related spending pressures remain a key risk to Ghana’s inflation outlook. On the global front, the prolonged Israel-Hamas conflict and associated airstrikes in the Red Sea add layers of risk through higher freight charges and commodity price pressures.

Disaggregating the inflation data, locally produced items dominated for the first time in months, with inflation at 24.2 percent, while inflation for imported items stood at 22 percent. Among the 13 divisions, seven recorded inflation rates higher than the national average of 23.5 percent, led by alcoholic beverages, tobacco and narcotics at 38.5 percent, while transport recorded the lowest rate at 5.6 percent.

On a regional basis, the Volta Region recorded the highest food inflation rate at 35.8 percent, while the Greater Accra Region had the lowest food inflation rate at 14.4 percent. The challenges posed by inflation, both domestically and globally, underscore the complexities faced by policy-makers in maintaining economic stability.