CONTINUOUS rise in food production and a slow down in government expenditure last month helped to sustain the rate at which the general price levels of goods and services increase in the country within that period.
Consequently, inflation for December 2011 inched up to 8.58 per cent after ending November 2011 at 8.55 per cent. The December 2011 rate thus represented a 0.03 per cent surge from that of the November 2011 rate, but 0.41 per cent lower than the goverment’s end-year inflation target of nine per cent for 2011.
WHY THIS REVERSE BLIP?
Although the December 2011 inflation rate was a blip, it contrasts sharply with the dips that were recorded in the same period in 2009; when the 16.92 per cent rate for November 2009 declined by 0.95 per cent to 15.97 per cent in December 2009. The situation was the same in 2010 when the November rate of 9.08 per cent went down 0.58 per cent to 8.50 per cent in December.
The Government Statistician, Dr Grace Bediako, who announced the December 2011 inflation figures in Accra, said the rise could have been higher had the food group of the inflation basket not acted positively to suppress the jumps in the non-food group.
The non-food inflation group, she said, recorded a 11.21 per cent rate in the month under review which “was more than two and half times that of the food inflation rate of 4.27 per cent.” This means the non-food group exerts more pressure on the entire basket.
She explianed that the rise in inflation for last December was partly due to the minimal hike in utility prices in late November.
The 15 per cent and 30 per cent increment caused a corresponding 10 per cent rise in transport fares nationwide. The rise in transport fares is currently feeding into prices of goods and services nation-wide as many traders now charge higher to offset the additional cost coming from the adjustment.
REALITIES FOR THE MPC
All things being equal, the general price levels of goods and services in the country, otherwise known as inflation, should go up slightly between January and February. But such an increase (if it does happen) will not come as a surprise since a similar adjustment in the prices of petroleum product in December 2010 caused inflation to reverse a then declining trend in January and February 2011 only to resume a consistent decline in March.
The challenge, however, is how this projected rise in inflation (for January and February) added to the speculated rise in government spending and a continuous pressure on the cedi will play to the benefit of the national economy in the coming months.
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| Dr Kwabena Duffuor, Minister, Finance and Economic Planning |
Some policy analysts and economists are already beginning to see the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) sitting on tentacles as they face a difficult decision of tightening its policy rate to contain the heavy spending to accompany the electioneering or leaving the policy rate untouched in order not to disrupt the free fall in interest rates.
Also, the inability of the various managers of the economy to tame these fears and the reality of a possible high spending in an election year are further fueling public anxiety over the status of the economy during and after 2012.
Such anxiety can lead to panic in the market as many people could opt for foreign currencies as safe havens for their individual investments. Banks can hold on to (or at worst hike) their lending rates for fear of a distabilised economy after 2012 or businesses rushing to import more so as to avoid the blues of trading with a weaker cedi after election 2012.
With all these in place, the MPC and the government’s economic management team will definitely have hard issues to tackle in the year under review.
Key among those for the MPC will be what to do to the monetary policy rate, which is already under pressure from speculated spending and projected rise in inflation for an upward review.
According to the Executive Director of the Centre for Policy Analysis (CEPA), Dr Joseph Abbey, “the MPC is really under pressure to review the rate upward, gauging from the quarter four MPC report that was released after that sitting.”
He added that “unless the BoG is well-cushioned (build up more international reserves) to offset these pressures, a rise in the policy rate should be expected soon.”
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| Amissah-Arthur, Governor, BoG and Chairman of the MPC |
For the government, managing the fears and mistrust of the business community and the general public on government expenditure and fiscal policies and actions in an election year will be paramount. Beyond that, however, the government will have to muster the political courage against the temptations of excess spending in a bid to fulfil election promises.
Anything short of that will mean returning the economy to harsher times after 2012 and a recurrence of the rebuilding of the national economy after every election year. And that is a reckless phenomenon that must not be accepted. GB
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