Otabil: Drop in inflation, not drop in prices

The Managing Director of Esoko Ghana, a fully integrated agricultural information exchange company, monitoring market prices and distributing same over mobile phones and the web, has said the recent announcement by the government's statistician of a drop in inflation, does not necessarily mean prices of goods and services are also going to fall.

According to Bernard, the low inflation rate does not necessarily mean that prices are not rising. He said the notion that a drop in calculated inflation means prices of goods and services are reducing or should be reducing is wrong.

“The confusion is that some people actually believe that a falling inflation rate means prices are falling. No. Not at all; it actually means that the rate of increase between periods has decreased. It does not necessarily mean that you should go to the market and pay less”, he explained.

“No economy wants to experience inflation. Yes, some people argue that some inflationary pressure is desired in certain circumstances to spur economic activity. When you control inflation, it helps you to plan more, and people are able to get a lot out of their incomes. Remember that real incomes reflect what you can actually do with your money, so controlling inflation means you are giving the populace the opportunity to plan better. Fixed income earners, and in this case I mean those who have invested in bonds for example benefits from low inflation. There are so many advantages that go with a reducing inflation and therefore we should not belittle the fact that the government has indeed done well”, Mr. Otabil said.

“We have been monitoring market prices for several years now, and most of the time, it is very difficult for prices to just come down, if they are not influenced by any underlying market force. Markets are driven by demand and supply forces. We have witnessed situations where supply shortage has pushed up prices without necessarily an increase in demand. Demand can be stable, but when supply reduces, for the market price to reach the next equilibrium, the price must rise. They are just 'natural forces' driving up prices”, Mr. Otabil added.

“For instance, some weeks back, the price of tomatoes in the Agbogbloshie market was on the rise because of supply shortages. There was nothing to suggest that people were demanding more tomatoes. But in our monitored activities for the week to July 16, wholesale and retail prices of tomatoes for the same market was GHC1.70 and GHC1.90 per kilo respectively, a drop of 61 and 60 per cent, because of arrival of more tomatoes in the market”, he said.

On a question of whether the falling inflation is real or imaginary, Mr. Otabil explained that: “You cannot really play with economics that way. I have always said that economics is played on the street, and not in an office somewhere. It is about people's behaviour, their perceptions and feelings that make them take economic decisions. Can you really control this if the government has not intervened? Economics plays out, and you will be caught out in the end if you cook stories about the performance of your economy. Greece did that, and where is their economy now? Remember that there are seasonal adjustments, and shifts in demand and supply conditions that affect market dynamics, so price variations between periods. So, yes, it is real and indeed commendable. Our poor farmers and those earning less should be happy about this”.

In the week ending July 16, figures released by the Government statistician showed a month-on-month inflation of 9.52 per cent, the country's lowest inflation rate for three years.