INFLATION CONTINUES TO CREEP UP

UNCLAS ACCRA 000803

SIPDIS

E.O. 12958:N/A
TAGS: ECON GH
SUBJECT: INFLATION CONTINUES TO CREEP UP



1. Summary: The Ghana Statistical Service (GSS) statistics
for March show that strong inflationary pressures continue
to bedevil the Ghanaian economy. Most analysts believe the
GoG/IMF inflation target of 9 percent at the end of 2003 is
unachievable. End Summary


2. Figures released by the GSS showed that prices rose by
29.9 percent between March 2002 and March 2003, compared to
the 29.4 for February 2002 to February 2003. The official
inflation rate is currently at its highest level since
September 2001. The GSS said a 3.3 percent increase in the
price of food and beverages and a 5.9 percent rise in the
cost of housing and utilities during March were the main
contributing factors.


3. A sharp rise in the inflation rate from 16.3 percent in
January to 29.4 percent in February generated a lot of
controversy over the accuracy of the figures. This delayed
the Monetary Policy Committee's decision on the Bank of
Ghana's prime rate. The February figure was finally
accepted, but it was expected to be a one-time increase and
thought to be the result of "turbulent data" captured during
the confusion over transport fares after the petroleum
product price increase in January 2003. As a result of this
the MPC cautiously increased the prime rate from 25.5
percent to 27.5 percent in March.


4. Contrary to government expectations, inflation has gone
up again in March 2003. Economists believe that inflation
impulses still persist which makes the disinflation process
hard to achieve. The rationalization of petroleum products
and utilities prices and the transmission lag of money
supply growth of 50 percent in 2002 are still exerting some
pressures. The upward revision of the prime rate has been
followed by an increase in the lending rates, which may lead
to some cost-push effects.


5. To most analysts, the GoG/IMF inflation target of 9
percent at the end of 2003 is unachievable. There are
expectations that it may slow down in the second half of the
year but may still remain between 15-20 percent. It will,
however, require a great deal of fiscal and monetary
tightness in order to get there.

Yates