In brief
- Ghana’s CPI inflation accelerated by 90bps to 23.0% y/y in November 2024 as the relentless climb in food inflation (25.9% y/y | +310) outweighed the modest decline in non-food inflation (20.7% y/y | -80bps), fanning the price pressure.
- We note that the main drivers of the recent food price surge are predominantly agrarian commodities which include crops and aquatic products. In our view, the relentless upswing in food inflation over the past three months reflects the price shocks emanating from the weak crop harvest induced by the adverse weather conditions during Ghana’s planting season. Also, we observed that the disinflation in non-food inflation reflects a moderation in services inflation with prospects for further decline in the December 2024 CPI.
- We see a high likelihood to overshoot the authorities’ revised target of 18.0% in December 2024. Despite the recent upward revision in the year-end central target to 18.0%, we believe the latest inflation upsurge has increased the odds of missing the revised central target as lingering upside risks persist in the immediate term. While we expect the sharp appreciation of the Ghanaian Cedi to tame the inflationary pressures in the December 2024 CPI window, we remain cautious about food price uncertainty which poses a risk to restraining headline inflation below 22.0%.
- The BOG swings into action to avoiding triggering the MPCC. According to the Monetary Policy Consultation Clause (MPCC) for Ghana’s ongoing IMF programme, if actual inflation falls outside the lower or upper outer bands for the test dates, the MPCC will be triggered. This will involve discussions with the IMF Board with proposed remedial actions to be implemented by the Ghanaian authorities. Given the revised central target of 18.0%, we estimate the upper outer band at 22.0%, above which the authorities would have to trigger the MPCC. With the risk of overshooting the upper outer band, which would trigger the MPCC, we believe the Bank of Ghana opted for the aggressive FX sales to ensure a favourable pass-through of FX appreciation and contain inflation below 22.0% by end-2024.
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