US embassy cable - 03ACCRA803

UNCLAS ACCRA 000803 
 
SIPDIS 
 
E.O. 12958:N/A 
TAGS: ECON, GH, economy 
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