Ghana’s inflation moved up by 90bps to a 14-month high of 10.6% in September 2021 from 9.8% in the previous month on the back of higher food and petroleum prices during the period under consideration. Ghana’s food inflation heightened from 10.9% in the August to 11.5% in September as food prices increase during the harvest season. Further, non-food inflation rose by 120bps to 9.9% in September because of higher crude oil prices, which led to higher pump fuel prices in Ghana.

Consumer inflation has now moved above the central bank’s target bandwidth of 6-10% for the first time in six months. And fixed income investors are likely to require higher interest rates to compensate for the lower real interest rates arising from higher inflation. The situation could push treasury yields higher in the final quarter of the year, but we expect this to be controlled given that the government is keen on minimizing its cost of debt as part of efforts to enhance its fiscal position. 

The inflationary pressures are likely to present a dilemma to the Monetary Policy Committee of the Bank of Ghana (BoG) when they meet in November to review recent economic developments to help reposition the benchmark policy rate for rate for the next two months. While the government is keen to ease the policy rate to boost economic activity, the increased inflationary risks may require them to tighten monetary policy to control consumer inflation.  We believe that their decision would give us an inclination of what they consider to be the most important priority right now – controlling inflation or driving economic activity?  What do you think they should prioritize?