According to figures released by the Ghana Statistical Service, there was nearly a 100% fall in the inflation rate of February from the previous month. The consumer price index for February puts the inflation figure at 11.3%, it was 22.4% in January.
A further drop is predicted for March based on the relative stability of the other macro-economic indicators. Significantly, the statistical service says that the economy has turned the corner after the temporary turbulence in consumer prices precipitated by the February 2003 price hikes in the prices of petroleum products and utilities.
By the end of January 2003 inflation stood at 16.3% (on course to an end period target of 9%. But at the end of February that year it had shot up to 29.4%, peaking at 30% in April and ending the year at 23.6%. The figures show that the economy may be developing stronger studs and girders that the nation has known since 1972.
The reason is simple. Inflation is caused by many factors, including price hikes in certain commodities or an increase in the quantity of money in circulation. While this fact may not be apparent, one of the main reasons why the Kufuor administration has managed to keep the inflationary lid down reasonably is that the Government did not over-spend or print more money as a short-term measure to counter the high domino prices in consumer products after February 2003.
The Bank of Ghana did well to keep monetary expansion low, thanks to the Bank Ghana Act, which was passed under this government. While the Central Bank made sure that there was adequate bank credit to boost economic growth, government reduced borrowing on the auction market and there was also a significant decline in the growth rate of broad money and reserve money – with the latter down from 42.6% (2002) to 28.2%(2003).
How relevant is inflation to the ordinary Ghanaian? Simply put, the value of the cedi in your pocket does not stay constant when there is inflation. Considering that for the past 40years, income has been falling in real terms it is obvious that the Ghanaian worker has been badly hurt by high inflation. A cursory look at the figures over the past 22years shows that the P/NDC failed miserably to beat the inflation bag.
Inflation figures from 1982 to 1989 show that not once was a single digit inflation rate achieved. The following figures clearly contradict those touted by Squadron Leader (Rtd) Clend Sowu; 22.3% (1982) 122.8% (1983), 39.6% (1984), 10.4% (1985) 24.6% (1986), 39.8 (1987), 31.4%(1988), 25.2%(1989). What is telling about the figures under Rawlings's regime is the up and down trends, underlining the fragility of the economy. This trend, as figures continued through the 1990s with inflation ranging from 70.8% in 1995 through 15.7 in 1998 to 40.5 in 2000.
Indeed on June 24, Rawlings warned a shit to full-cost recovery prices of petroleum products. Had he not succumbed to election year pressures and failed to keep his word, the burden would have been lessened for Ghanaian consumers last year. However before we start prancing acrobatically high, let us observe that the factors that feed our inflation remain very much the same. This means that ours is mainly cost push inflation rather than demand pull inflation. The demand aspect may be attributed largely to Ghanaians taste for foreign goods and therefore the need for foreign currency.
So long as our local industries remain weak, too much cedis will chase few dollars. This undoubtedly affects companies cost of production, forcing them to increase prices in order to maintain their profit margins. We will therefore urge the government to continue with its positive bias towards the private sector an for the private sector to respond positively by offering consumers value for money. That is one sure fire way of deflating the inflation bubble.