Sections of the public calling for price control measures to force the hand of businesses and traders to reduce prices to reflect the gains made in the Ghana Cedi against the US dollar may have to rethink, as an economist has outrightly dismissed such calls.
Despite the recent significant gains recorded by the Ghana cedi against the US dollar, prices of goods and services in local markets remain stubbornly high, a situation that has led to growing public frustration among consumers.
Such people believe the surest way they can also benefit from the gains is for the government to impose price regulations.
However, Dr. Paul Appiah Konadu, an economist and lecturer at Pentecost University, says such interventions in the current market environment are not only unrealistic but also economically unwise.
He tells The High Street Journal, the suggestions for price regulations are impractical within the framework of Ghana’s largely liberalized market economy, which mimics the structure of a perfectly competitive market.
“Some have suggested market regulation through price controls, but unfortunately, that will not work in our kind of market system,” he said. “How do you enforce that? Are you going to use the police or the security agencies? Where are you even going to start from? It simply won’t work,” he declared.
Why Price Controls Fail in Competitive Markets
It is obvious that Dr. Appiah Konadu’s rejection of price controls stems from basic economic theory. Ghana’s markets largely operate in a perfect competition, with the exception of a few markets for certain products. In a perfect competition system, there are numerous buyers and sellers selling similar products. Prices are determined by the forces of supply and demand. Firms in this kind of market are price takers, not price setters.
The market, when left alone, is assumed to reach a natural equilibrium where goods are allocated efficiently, and price signals reflect all relevant information, including costs, consumer preferences, and expectations.
Any artificial fixing of prices, such as a government-imposed maximum or minimum price will create inefficiencies in the market. Price ceilings typically lead to shortages because demand exceeds supply at the fixed price. Price floors, on the other hand, result in surpluses, where supply exceeds demand. These distortions often require further state interventions to correct, which is a cycle that is difficult to sustain.
The Time Lag Relationship Between Exchange Rate Movements and Market Prices
The economist offered a practical explanation for the perceived delay in price reduction following the cedi’s recent gains against the dollar. He pointed to the lag between the ordering and arrival of imported goods, which often spans two to three months.
“It takes about three months for a consignment to arrive in Ghana after you have initiated the purchase or the order. And so what that means is that the goods they are selling now in May were probably procured in January or February, at the time the exchange rate was around GHC 16. And so there is that time lag between variations in the exchange rates and the response of the market,” he indicated.
This indicates that the prices are not based on the current exchange rate but on the prevailing exchange rate at the time of the goods were imported. Reducing prices now would mean under-recovering the costs incurred, which threatens business sustainability.
The indicates, as argued by the traders, “If you ask them to reduce prices now, it means they’ll be selling at a loss.”
Why Prices Go Up Quickly but Fall Slowly
Interestingly, the economist pointed out that traders often increase prices swiftly during depreciation periods because they anticipate needing more cedis to purchase dollars for future consignments. However, during appreciations, they are slower to reduce prices, citing the cost of existing stock.
“They automatically adjust the price because when there is a depreciation, the thinking is that when you have sold your stock, you have to buy the dollar at a higher rate to be able to replace your stock. And so they increase prices in anticipation of the higher rate at which you will buy the dollar in ordering the next consignment. And you know, traders would always look at their interest rates. But when there is appreciation, then they will tell you that the stock they are selling was bought at a higher price and that we should wait for the next stock, which we bought at the new lower rates,’ he explained.
Although he admits this behaviour of traders is frustrating to consumers, he believes it is rooted in risk management and business sustainability.
The Best Approach: Appealing to Traders’ Conscience, Not Compulsion
In the absence of effective price control mechanisms, Dr. Konadu endorsed ongoing efforts by the Ghana Union of Traders Association (GUTA) to appeal to traders’ moral responsibility to reflect currency gains, even if only marginally.
“What we can do, just as GUTA is doing, is to appeal to the conscience of traders to at least reduce prices slightly so that consumers feel the impact of the cedi’s appreciation,” he said.
Such reductions, even if modest, send positive signals to the market and help restore confidence among households.
Dr. Konadu’s insights reinforce other economists, such as Prof. Peter Quartey’s stance that there are complexities behind pricing dynamics in an import-dependent economy. While the cedi’s appreciation is a positive macroeconomic development, its benefits will take time to filter through to the ordinary Ghanaian.
He advises patience, transparency from traders, and continued engagement between stakeholders rather than knee-jerk regulatory interventions. For Dr. Paul Appiah Konadu, consumers should expect a reduction in the market in the month or two.
