In brief
- Ghana’s headline CPI inflation took an unexpected turn in the latest reading, hitting an upside surprise with a 110bps rise to 21.5% year-on-year in September 2024. The upturn in annual inflation came against our expectation of a decline to 19.0% with continued impact of crop harvest in August 2024, the relatively stable FX since July 2024, and lower energy prices during the CPI data window.
- Food inflation was the upside catalyst for the headline rate as it surged out of the blue by 300bps to 22.1% in September 2024. This partly reflects the unfavourable base effect created by the annual deflation recorded for some sub-classes while the reacceleration in prices of agrarian produce suggests weaker food crop harvest likely due to poor weather conditions. Non-food inflation however declined by 60bps to 20.9% to partly offset the upshift in the headline rate for September 2024.
- The authorities’ end-2024 target of 13.0% – 17.0% faces elevated upside risk which could stay the policy rate at 27.0% at the November MPC meeting. The latest inflation upsurge coupled with the 200bps cut in the nominal policy rate reduces the ex-post real policy rate to 5.5% in September (vs 8.6% in August). This pulls Ghana’s real policy rate below peer countries such as Kenya (9.2%) and Uganda (7.0%). Our updated model with the surprise inflation uptick shows a marginal increase in the annual inflation rate to 21.6% in October 2024 (+10bps). We think this will push the pause on the MPC’s rate cutting plan in November 2024.
- The inflation upturn will mute the impact of the recent policy rate cut on yields. With the Treasury’s high borrowing pressure pushing up yields on T-bills in September, we saw the policy rate cut as a slight offset to the upward pressure on yields. However, the unexpected rise in annual inflation will dampen market optimism and keep T-bill rates elevated in the near-term.
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