Commodity price index: sure way to check inflation

The Chief Executive Officer of Blackwealth Consulting, Mr. Mawuko Williams has underscored the need for Ghana to have a commodity price index as a sure way of keeping inflation in check.

In an interview with The Mail, during the launch of Esoko Ghana's agricultural commodity index, the industry expert called for a more concerted effort in making the dream of having a national commodity index, a reality. Mr. Mawuko said even though the government has set up a technical committee to facilitate the agenda, a lot more needs to be done. “The importance of a commodity index can't be overlooked in this day and age. All over the world, commodity price indexes have helped in monitoring the actual costs of goods and services and not on perceptions. What we do here is always assume based on perceptions that, prices of goods and services have gone up or down without verifying through scientific means. The step taken by Esoko is a commendable approach but it shouldn't end here. There is a bigger picture out there, one which contains a broader spectrum of the economy”.

He feared that in the absence of a commodity exchange, brokerage firms won't be able to publish the indexes, a sharp contrast to what is done in other jurisdictions.

He called on stakeholders to push hard for its implementation even though a lot is happening behind the scenes. He called on the technical committee set up by the government to deliver since by so doing, real prices of goods and services would be known, planning would be effective, and which prices to control in the food basket figured out, since food inflation constitutes a lot to inflation as a whole. “If the government has to control prices of goods and services, it must know which one to control. How do you track prices when you don't know which components in the food basket you need to subsidize or not? For instance in the budget there is a plan to restore subsidy, how does the government achieve that without knowing the actual prices of the goods on the market”?

Despite the challenges, Mr. Mawuko is optimistic that a commodity price index for Ghana in the near future is feasible. 'It is a dream we all going to contribute to ensure its success. It worked in other places, why can't it work here”.

A commodity price index is a fixed weighted average calculation of selected commodity prices, which may be spot or futures prices. It is designed to be representative of the broad commodity asset class or a specific subset of commodities, such as energy or metals. The constituents in a commodity price index can be broadly grouped into the following categories: Energy, Metals, Base Metals, Precious Metals, Grains and Livestock

Investors can choose to obtain a passive exposure to these commodity price indices through a total return swap. The advantages of a passive commodity index exposure include negative correlation with other asset classes such as equities and bonds, as well as protection against inflation. In the more mature markets, these indexes are tradable on an exchange.

Some of the very popular commodity price indexes are the Dow Jones-AIG Commodity Index , Goldman Sachs Commodity Index ,Standard & Poor's Commodity Index (S&P), Astmax Commodity Index(AMCI), Commin Commodity Index, Thomson Reuters/Jefferies CRB Index and NCDEX Commodity Index.

Ghana is yet to have its first commodity price index that covers various sectors of the economy, even though Esoko's launch of their agriculture index is a novelty.

By: OBED BOAFO-The Accra Mall
Development / Accra / Ghana / Africa / Modernghana.com