13 February 2014

Ghana: Economy Sweats Over Increased Water, Electricity Tariffs - Push Inflation to Record High

The recent hikes in water and electricity tariffs are having knockdown-effect on the overall stability of Ghanaian economy following the announcement that for the first in four years the West African second largest economy recorded 13.8 percent of inflation in January 2014.

The 13.8 percent rate of inflation went up from 13.5 percent recorded in December last year, depicting 0.3 percentage points increase, from that of December 2013.

This means that in the month of January 2014, the rate of increase in the prices of goods and services was higher in January, compared to December, the previous month.

The rate of inflation for January 2014 is the percentage change in the Consumer Price Index (CPI), which is the government measure of inflation over the twelve-month period, from January to December.

The Head of Economics & Statistics at the Ghana Statistical Service (GSS), Edward Esuo Afram attributed that high cost of housing and transport accounted to the increase.

The Non-food group of the CPI recorded an inflation rate of 18.9percent, 0.8percentage points higher than December 2013 which recorded 18.1 inflation - according to the monthly newsletter of the GSS.

Housing, Water and electricity subgroup which recorded a staggering 37.9 inflation were mentioned as the key drivers to the surge.

While the Food and Non Alcoholic beverages group of the CPI recorded an inflation rate of 7.1 percent, with mineral water and soft drinks subgroup recording a rate of 16.1 percent as the main drivers.

As recently allured to by the Governor of Bank of Ghana, Dr Henry Kofi Wampah "inflation expectations have heightened and headline inflation ended 2013 at 13.5 percent, above the target band of 9±2 percent".

The domestic economy continued to experience fiscal pressures, exchange rate depreciation and cost-push effects from higher petroleum and utility prices.

Fiscal consolidation for 2013 was slower than anticipated. The overall budget deficit was provisionally estimated at 10.2 percent of Gross Domestic Product (GDP) against a target of 9.0 percent, following a deficit of 11.8 percent in 2012. Expenditures were broadly on target; however revenues were significantly below target, resulting in the fiscal slippages, Dr Wampah stated.

The fiscal imbalances and the external pressures resulted in a current account deficit of 12.3 percent of GDP up from 12.1 percent in 2012. This was on account of worsened terms of trade, and a significant decline in net current transfer receipts. In particular, individual remittances declined by 4.3 per cent year-on-year to US$1.7 billion.

It may be useful to note that cocoa and gold export receipts declined by $1.3 billion in the year. The overall balance of payments deficit of $1.2 billion thus remained the same as in 2012.

Gross international reserves as at the end of 2013 amounted to US$5.6 billion (3.1 months of imports) compared with US$5.3 billion (3 months of imports) at the end of 2012.

These developments in the fiscal and external sector together with the global pressures resulted in a depreciation of the Cedi by 14.6 percent against the US Dollar in 2013 compared to 17.5 percent in 2012. However, Dr Wampah observed a much faster pace of depreciation since end-December 2013.

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