In brief
- Headline inflation came in higher than expected for December 2024, closing the year with a feeling of anti-climax as the late-year upturn completely eroded the downturn in 2Q2024. Annual inflation went up 80bps to 23.8% in December 2024, exceeding the authorities’ 22.0% target upper outer band under the IMF programme by 180bps.
- Following the Bank of Ghana’s FX market operations late last year, which triggered a strong appreciation of the Ghanaian Cedi, we had anticipated a favourable pass-through to inflation. While we observed the favourable pass-through of the Cedi’s strong appreciation to non-food inflation, food inflation remained under pressure with agrarian produce prices sustaining the heat.
- Food inflation surged 190bps to 27.8% y/y and sustained the general price pressure in the final months of 2024. We believe the sustained rise in food inflation in the past four months underscores the lingering impact of the hot weather conditions during the 2024 planting season, which keeps us cautious on the immediate term outlook. Non-food inflation declined for the second consecutive month to 20.3% y/y in December 2024, ostensibly suppressed by the favourable pass-through of the strong Cedi appreciation.
- Target overshooting raises the prospect of triggering the IMF Monetary Policy Consultation Clause (MPCC). In our inflation update for November 2024 – Relentless – we flagged the elevated risk of overshooting the authorities’ end-2024 upper outer band target of 22.0%, which will trigger remedial measures to restore inflation within target band. Given the latest uptick in annual inflation, Ghana’s real policy rate has further softened to 3.2%, requiring further hikes in the nominal policy rate to restore a sufficiently restrictive monetary stance. We think the authorities may require a real policy rate of between 5.0% and 7.0% to tighten monetary conditions and restore disinflation in the ensuing months. Against this backdrop, we envisage up to 200bps hike at the January 2025 MPC meeting.
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