Economist and Director of the Institute of Statistical, Social and Economic Research (ISSER), Prof. Peter Quartey, has waded into the debate emanating from the public over demands for a reduction in prices of goods and services, following the recent appreciation of the Ghana cedi.
While Prof. Peter Quartey acknowledges that the growing demand is justified, he also points out structural and behavioral challenges in Ghana’s pricing environment that complicate immediate price drops.
The economist who was speaking at the launch of the Mastercard Foundation Youth Futures Initiative and Stakeholder Engagement in Accra, explained that price increases tend to be swift when the cedi weakens, but when it begins to gain strength, retailers are often slow in adjusting prices downward.
He attributed the phenomenon to what he describes as “price stickiness.” He explains it is a situation where prices are slow to adjust downward despite favorable market conditions.
According to him, this behavior is partly due to the fact that many traders import their goods when the cedi was weaker, hence using a higher exchange rate as their cost base. As a result, reducing prices immediately after a currency rebound could result in losses for such businesses.
”Well, it’s justified to some extent in the sense that in Ghana, we know prices are sticky downwards,” he noted.
Nonetheless, he maintains that the calls for reductions are justified. He said, “Anytime the exchange rate depreciates quickly, traders increase prices, but as soon as it appreciates, then there is some sluggishness in reducing prices. We also appreciate the fact that some have imported using the old exchange rates.”
On the long-term sustainability of the gains, Prof. Quartey emphasized the need for continued sound monetary policy and strong enforcement of forex regulations to sustain the current exchange rate gains.
He underscored the role of the Bank of Ghana in boosting gold reserves and monitoring geopolitical trends such as the recent temporary trade deal between the U.S. and China, which could affect the strength of the dollar.
He further criticized Ghana’s loosely regulated foreign exchange market, which he believes could play a role in the undoing of the cedi if unchecked.
“It is only in Ghana where one can walk to a corner and buy a dollar and a pound and walk around with it. In other jurisdictions, they take your passport so they know what it is going to be used for,” he remarked.
Prof. Quartey urges both policymakers and market participants to take bold but sensible actions to ensure that exchange rate gains reflect meaningfully in consumer prices, without undermining the sustainability of the economy.
