July 16, 2021/Cordros Report
In line with our expectation, Ghana’s headline inflation resumed uptrend in June after the base effect induced moderation in May. According to the Ghana Statistical Services (GSS), headline inflation increased by 29bps to 7.81% y/y (May: 7.52% y/y). The uptick in the consumer price index was driven by the higher transportation and food prices. The outturn was 19bps higher than Cordros’ estimate (7.62% y/y), with the largest variance stemming from the food basket. On a month-on-month basis, the consumer prices rose by 1.27% (May: 0.78% m/m).
The prices of food increased by 55bps to 1.83% m/m (May: 1.28% m/m) given the pass-through impact of a 13.0% increase in transport fares on food items and increased demand for food relative to supply. Pressure was most significant in the prices of Ready-made food (2.23% m/m vs May: 0.22% m/m), Cereals (1.97% m/m vs May: 0.94% m/m), and Live animals (1.11% m/m vs May: 0.60% m/m). On a year-on-year basis, food prices surged to 7.30% y/y in June (May: 5.43% y/y).
Recall that the Ghana Private Roads Transport Union (GPRTU) announced a 13.0% increment in transportation fares effective 5th June to accommodate the increase in fuel pump price given the (1) rally in crude oil prices in the international market and (2) National Petroleum Authority’s implementation of 9.00 pesewas per litre increase in fuel margins. Based on the preceding, transport prices (3.13% m/m vs May: 1.35% m/m) rose to the highest since July 2020 (3.87% m/m). Price increases were also felt across the Furnishings & routine household maintenance (0.6% m/m vs May: 0.2% m/m), HWEGF (0.3% m/m vs May: 0.1% m/m), Clothing & Footwear (0.2% m/m vs May: 0.1% m/m) sub-baskets. Accordingly, the non-food inflation rose 0.82% m/m (May: 0.39% m/m). On a year-on-year basis, the non-food inflation moderated by 101bps to 8.22% y/y (May: 9.23% y/y), driven mainly by the favourable base effect from the prior year.
Over the medium term, we expect food inflation to remain below the 10.78% y/y last seen in March, driven by the high base effect from the prior year. Thus, in July, we estimate food inflation will increase by 0.37% m/m, translating to 7.65% y/y (June: 7.30% y/y). Similarly, we expect the impact of higher transport fares to continue to be felt in July. We, however, think the relatively stable currency could slowly neuter the effect of the higher transport cost. Consequently, we look for a 0.67% m/m reading in the non-food basket, translating to 7.94% y/y.
Covering all bases, we forecast a 0.54% m/m increase in headline inflation in July, with the favourable base effect from the prior year translating to a y/y reading of 7.76%.
