Why Cedi appreciation has not brought down prices in Ghana

The recent appreciation of the Ghanaian cedi has raised hopes among many citizens that the prices of goods and services would fall. A stronger currency should make imports cheaper, reduce the cost of living, and improve purchasing power. But in Ghana, this expected outcome has not materialized. Prices remain high, and many Ghanaians continue to struggle with the cost of basic goods. This article explains why the appreciation of the cedi has not led to a reduction in prices and why the current currency strength is not based on solid economic improvements such as increased productivity, innovation, export, or local industry growth.

Currency Strength Without Industrial Growth

When a country’s currency gains value because it is producing more goods and exporting them to the world, it creates a real foundation for strength. That is because more goods are entering the market, raising supply and creating more jobs. In such cases, prices tend to fall or stabilize. However, in Ghana, the recent cedi appreciation is not the result of rising local production or exports. There is no apparent increase in manufacturing, no surge in value-added exports, and no significant shift toward local industries replacing imports. Ghana continues to rely heavily on raw exports such as gold, cocoa, and crude oil—products whose prices are set internationally and do not reflect a rise in domestic productivity. Because there is no significant increase in the supply of goods, prices have not gone down.

Driven by External Forces, Not Domestic Strength

Factors outside Ghana’s control have primarily driven the appreciation of the cedi. The U.S.-China trade war drove up gold prices globally, which in turn helped Ghana earn more foreign currency. Cocoa prices have also gone up due to international supply issues. Additionally, financial support from the International Monetary Fund (IMF) and the World Bank has helped boost reserves. Tight monetary policies from the Bank of Ghana, including high interest rates, have also contributed to exchange rate stability. However, these changes have not been supported by growth in factories, farms, or digital services at home. As a result, the appreciation lacks a strong economic foundation and does not significantly influence prices in a lasting manner.

No Supply-Side Change to Push Prices Down

For prices to drop, there must be more goods and services available, either through increased imports or higher domestic production. However, Ghana’s local industries have not expanded significantly. Many businesses still face high costs for electricity, transportation, and raw materials. There has also been no significant reduction in import duties or port charges that could make foreign goods cheaper. Because there is no substantial change in the supply of products, prices remain high even though the cedi has strengthened.

Business Uncertainty and Sticky Prices

Businesses are also hesitant to reduce their prices. Ghana’s currency has a history of sudden depreciation, and many traders fear that today’s gains may disappear tomorrow. Since most goods currently being sold were imported or produced when the cedi was weaker, sellers keep their prices high to cover past costs. Even if new stock arrives at a lower cost, many businesses wait to see if the currency appreciation is real and lasting. This cautious approach keeps prices from falling quickly. Economists call these “sticky prices,” meaning prices go up easily but come down very slowly.

High Cost of Doing Business
Another reason prices are not falling is that the cost of doing business in Ghana remains very high. Fuel prices remain elevated, utility tariffs have not decreased, and borrowing money is expensive due to high interest rates. These high production and operating costs are passed on to consumers. Even if the exchange rate improves, businesses cannot afford to lower their prices when their day-to-day expenses remain unchanged or even rise.

Lack of Local Substitutes and Import Dependency

If Ghana were producing more of its rice, oil, or medicines, local alternatives could compete with imported products and help drive prices down. But that is not yet the case. Ghana still imports a significant portion of its essential goods. The temporary drop in imports over the past year was not due to local substitutes but because prices had become too high for many people to afford. When an economy remains dependent on foreign products, exchange rate strength alone is insufficient to reduce costs for consumers.

Inflation, Psychology, and Public Expectations

Years of high inflation have shaped the way traders and consumers think and behave. People expect prices to keep rising, and that expectation becomes a habit. Businesses assume that costs will go up, so they hesitate to lower prices. Consumers, in turn, accept high prices without much pushback, fearing they will only go higher. This inflationary mindset slows down any effort to reduce prices, even when the cedi appears to be gaining strength.

Conclusion: Strong Currency, Weak Relief

The appreciation of the cedi has not brought down prices in Ghana because it is not based on real, lasting improvements in the economy. It is primarily driven by external factors and supported by short-term financial measures rather than by increases in production, productivity, or innovation. Without more goods in the market, lower business costs, and a shift toward local production, the benefits of a stronger currency will not reach ordinary people. To truly reduce prices and improve living standards, Ghana needs to invest in its productive sectors, improve infrastructure, support local industries, and build a more efficient economy from the ground up. Until then, the cedi may look strong on paper, but the cost of living will remain painfully high.