In brief
- Ghana’s annual consumer price inflation appears in a race downhill with gravity as headline inflation nosedived 320bps to 23.2% y/y in December 2023 on the back of sharp deceleration in food (28.7%) and non-food inflation (18.7%).
- The end-2023 annual inflation outturn roundly outperformed expectations, beating both the market consensus and our in-house forecast of 24.2% as well as the 25.4% outer band of the lower limit in the IMF programme target.
- On a month-on-month basis, headline inflation came in at 1.2% (vs 1.5% m/m in November 2023) as a 120bps drop in non-food inflation outweighed a 50bps increase in food inflation. We believe the uptick in the month-on-month food inflation for December 2023 reflects the impact of seasonal demand for the year-end festivities as Ready-made food and soft drinks witnessed the steepest m/m price increases. We compared the behaviour of m/m inflation in 1H2023 with that of 2H2023 and observed milder swings in 2H2023, reflecting cooling pressures.
- Fundamentally, we believe that the year-on-year downward correction in energy prices in late 2023 favourably impacted non-food inflation via Transport, and gas & other fuels. Additionally, we opine that the utility tariff adjustment which became effective on 01st December 2023 had a net positive impact on the CPI for utilities. Excluding the CPI for energy and utilities, we believe core inflation likely remained above the headline inflation rate by about 100bps, albeit witnessing a sizable decline in similar step with the headline rate.
- Our forecast shows a modest decline in the annual inflation rate to 22.4% y/y in January 2024 as the improved FX outturn in late December 2023 into early January 2024 sustains the lid on price pressures. We also anticipate the lagged impact of the lower electricity tariff implemented last month to sustain the disinflation in January 2024. However, the authorities have signalled the introduction of VAT on residential use of electricity above lifeline consumers (>30kWh) with effect from 01st January 2024. This, together with the new taxes in the 2024 budget, will weaken the pace of disinflation in early 2024 and keep the Bank of Ghana cautious on the timing of anticipated start to cuts in the policy rate.
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