BoG to review inflation target framework

By Elorm Desewu

The Bank of Ghana, (BoG), is considering reviewing its inflation target band of 8±2 percent towards a rate which is more appropriate for the country.

The Ghana Statistical Service, announced 7.8 percent year on year inflation for August 2019 which came about because of the rebasing and the new Ghana Living Standards survey.

“I have said this before that when your trading partners’ inflation is below 5% and you have 8% inflation, you are not competitive. So, we must aim to drive inflation closer to the inflation rates of our trading partners. If you agree with this argument, then we should be looking at setting a lower medium-term target for inflation.

Whether it should be 5% or 6% is where the debate will be, but I expect that by the end of this medium-term period, we would probably have to reset the target for inflation lower”,  said the governor of BoG, Dr Ernest Addison.

The new inflation number of 7.8% means the country’s inflation rate is slightly below the medium-term target of 8±2 percent set by the BoG.

Following the revision of the Consumer Price Index by the Ghana Statistical Service to reflect weights from the Ghana Living Standards Survey of 2017 and a revised base year of 2018, a new measure of headline inflation was estimated at 7.8 percent for August 2019, moving it below the central path of the Bank of Ghana’s medium-term inflation target of 8±2 percent.

Food inflation was reported at 8.2 percent and non-food inflation was at 7.4 percent. However, underlying inflation, measured by core inflation (CPI excluding utility and energy) inched up slightly, alongside some moderate pick-up in inflation expectations from businesses, consumers, and from the financial sector.