In brief
- Headline inflation printed broadly in line with our expectation as both the annual and sequential rates slowed in February 2025. Annual inflation came in 40bps lower at 23.1% (IC Insights: 23.2%) while the sequential rate declined for the third consecutive month, landing on our projected 1.3% m/m.
- Unlike the January 2025 outturn which was solely driven by non-food disinflation, the latest decline in headline inflation was helped by lower inflation for both food and non-food items. Food inflation witnessed a first decline in 6-months with a 20bps dip to 28.1% year-on-year as nine out of the fifteen sub-groups posted lower inflation rates. Non-food inflation continued to exhibit cooling price pressure, declining for the 4th consecutive month to 18.8% year-on-year (-40bps) although a 100bps upsurge in the heavy-weight transport inflation (17.9% y/y) restrained the decline.
- The latest disinflation slightly elevates the real policy rate to 3.9% but still within a less restrictive territory, in our estimation, and potentially keeps the MPC in wait until mid-2025. We estimate that the fiscal measures to be implemented post-2025 budget presentation and approval in March would start to yield modest impact and more durable disinflation, paving the way for rate cut to resume in May 2025.
- We expect the impressive stability of the Ghanaian Cedi to continue to tame the upside for price levels, sustaining the downside for headline inflation. We also view the ongoing fiscal tightening as a potential curb on aggregate demand while our observed 1.3% decline in prices of petrol and diesel in the March 2025 CPI data period (vs 7.0% hike a year ago) caps transport inflation. However, we think food prices remain vulnerable to supply-side shocks as we begin the lean season. Additionally, the unexpectedly modest rise in the CPI level (+1.7pts) in March last year poses a risk of unfavourable base effect for the March 2025 inflation estimates. With the confluence of downside and upside risks, we expect a 20bps rise in March inflation to 23.3% y/y, although m/m likely dips to 1.0%.
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