[2008-06-23]  Inflation To Hit 18.4%
A fresh research conducted by a renowned financial organization, Databank Financial Services, indicates that June inflation is expected to reach 18.4 percent.

This figure represents a 1.5 percent rise over last month’s figure.
According to the study, inflation for next month is expected to continue the current upward trend despite the seasonal downturn associated with the month, mainly because of expected further upward adjustment in domestic petroleum prices, as crude oil prices have increased from $125 per barrel in May 2008 to $140 per barrel.

The ability of monetary policy to absorb the pressures emanating from the continuing global food and petroleum price increases is strained, the report suggested.

It explained that risks to inflation remain high for Ghana since the fiscal and exchange rate anchor for price level stability for the economy continues to weaken and the economy is not likely to absorb the continuing threat of the global food and fuel price hikes within the short term.

The study emphasized that it expects the continuing slippage in the gross international reserves of the economy to facilitate a weaker cedi during the year.

Thus, this is likely to put further pressure on domestic prices in the wake of higher imported inflation from rising global food and fuel prices.

The Ghanaian currency registered a year-to-date depreciation of 5.09 percent in May, which is dismal compared to 0.62 percent outturn in the same period in 2007; and has already exceeded the year-end depreciation for last year.

This according to the study triggers the local currency to further depreciate above 6.5 percent by the end of the second quarter, and this would further facilitate a higher inflation rate by half year.

Increased domestic demand fuelled by monetary expansion from loose fiscal policy and increased commercial bank credit to households would also worsen food inflation and pose a threat to price level stability.

Ghana’s fiscal deficit stood at 2.9 percent of gross domestic output at the end of the first quarter of the year.

This according to the study is unfavorable compared to the 0.9 percent of gross domestic product recorded for the same period in 2007.

The increased domestic demand is met largely by higher imports due to skewed consumer preferences for imports and low domestic production capacity.

Essentially, the report added that it does not expect the government’s recent fiscal mitigating package to significantly reduce prices. Rather it will reduce the rate of increase of domestic prices.

It further stressed that the efficacy of the prime rate in mitigating monetary expansion remains weak in the short term and that increasing the prime rate more than the expected would be more effective in reducing domestic liquidity if the central bank remains committed to using it to influence money supply.
Source: Copyright © 2006 by Ghana Daily Guide