In brief
- Ghana’s consumer price inflation got off to a promising start in 2025 but served a strong reminder that disinflation tailwind is yet to fully set in. Headline inflation declined by 30bps to 23.5% year-on-year in January 2025, a slower decline than our expectation of -50bps but a tad faster than the market expectation of -20bps.
- In our view, the inflation decline in January 2025 reflects the belated pass-through of the strong appreciation of the Ghanaian Cedi in November and December 2024. This will likely strengthen the authorities’ case to deploy forex intervention as a stopgap measure ahead of the disinflation tailwind expected in the 2025 budget.
- Non-food inflation extended its cooling momentum into the 3rd straight month, declining by 110bps to 19.2% year-on-year while food inflation continued to boil over, rising for the 5th straight month to 28.3% year-on-year (+50bps).
- The moderation in the annual inflation rate raises optimism about the near-term return to disinflation. However, we flag the continued increase in food inflation as a strong indication of lingering upside risk. This will extend the time for resuming monetary easing to mid-2025 after the extent of fiscal interventions to curb food price pressure is fully laid out in the 2025 budget in March.
Moderation in services inflation bodes well for near-term disinflation. We believe the broad decline in services inflation reflects the pass-through of the Cedi’s appreciation in late 2024 which had an immediate impact on non-food inflation but a delayed drag on the headline rate. While we continue to view food inflation as a lingering upside risk to headline inflation, we expect the Bank of Ghana to keep a tight grip on the exchange rate in a bid to strengthen the emerging disinflation. Thus far in the February 2025 CPI window, we note a 4.8% decline in Brent crude oil price while the Cedi weakened by 3.6%. This will cap the upward pressure on prices of petroleum products and sustain the cooling non-food inflation against upside push from food inflation. As a result, we forecast a 30bps downtick in annual inflation to 23.2% with the m/m rate at 1.3%.
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