Inflation to rise further…as 15% transport hike kicks off
By Elorm Desewu
The recent price hike in transport fare by 15 percent would
exert some pressure on the country’s inflation rate for the next couple of
months and most likely put some key macroeconomic indicators off gear.
The government last week announced 15 percent increase of
transport fare after the transport operators have mounted pressure.
But this current hike would also affect the Bank of Ghana’s
inflation target of 8±2 percent .
According to the BoG, the baseline projection for headline inflation would
remain at the upper end of the medium-term target band of 8±2 percent to end of
2020.
Year on year inflation measured by the Consumer Price Index,
(CPI), for May 2020 was 11.3 percent up from 10.6 percent recorded in April
2020.
At the end of the first quarter of 2020, headline inflation was
on target, averaging 7.8 percent for the quarter.
This was mainly driven by relatively tight monetary conditions
(positive real interest rate gap), lower inflation expectations, low imported
inflation, and low real marginal costs. The low real marginal costs came on the
back of widening under-capacity utilization of the economy, resulting from
negative demand shocks and the relatively tight monetary conditions.
Although headline inflation rose significantly in April, driven
by panic food buying ahead of the partial lockdown as part of the Covid-19
containment measures, inflation is expected to gradually decline in the second
quarter, barring unanticipated shocks.
Output gap (the measure of the level of capacity utilization)
is projected to remain negative in the medium-term, driven by real sector
expectations of weak economic activity, persistence of the current negative
demand shocks, and relatively tight monetary conditions in the forecast
horizon.
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