After many weeks of persistent gains in the strength of the Ghana cedi, the conversations have now shifted to why, despite the gains, prices are still high on the shelves and on the market. With the exchange rate being a significant determining factor of cost in Ghana, it is expected that the appreciation will trigger price reductions.
After months of watching the Ghanaian cedi claw back significant ground against the U.S. dollar, many consumers had hoped their grocery bills, transportation fares, and utility costs would begin to ease.
Although the GPRTU has announced a 15% price reduction, which will take effect on Saturday, the general prices of goods and services still remain high. A walk through any of the major markets in Accra or Kumasi today will reveal that despite a strong currency, prices have not budged.
The common question on the lips of many consumers is, “So, what’s really going on?”
A recent episode of the Deep Dive podcast cited by The High Street Journal has comprehensively explored this frustrating puzzle in detail, unpacking the complex economic concept known as price stickiness that explains the situation.
Interestingly, it also draws some revealing parallels to Ghana’s own history, most notably the 2007 cedi redenomination exercise on history is repeating itself.
Price Stickiness: What is it?
The core economic principle that explains this situation is price stickiness. It refers to the tendency of prices to rise quickly when the cost of inputs or foreign exchange rates worsen, but ironically fall slowly, if at all, when the reverse happens.
So consider it like a ratchet. Prices can generally click up easily, but clicking back down takes far more effort and time.
In Ghana’s context, the podcast enumerated several reasons for this phenomenon in the market. Let’s consider them.
Uncertainty About Currency Stability
The cedi has so far appreciated by about 16%. Despite the strength, businesses remain cautious since there is some fear that the gains are just fleeting away. Many are unsure whether the rally is sustainable or merely a temporary bounce. This has resulted in the adoption of the “wait and see approach,” hence the refusal to immediately cut prices.
Moreover, there is the fear that cutting prices and immediately reversing it due to a slip in the cedi again can damage consumer trust and erode already thin profit margins. So instead, many businesses choose to hold prices steady, prioritizing stability over swift adjustments.
“Companies might hesitate to lower prices if they aren’t sure the stronger Cedi is going to last. They don’t want to lower prices now only to have to raise them again in a few months if the Cedi slips back. That could annoy customers and mess with their profit margins. They prefer stability if they can get it,” the analyst from the Deep Dive podcast remarked.
Locked-In Contracts and Local Costs
Another reason why prices are still holding up is that much of the cost structure for Ghanaian businesses is long-term contracts. From shop rents to utility bills to wages, many of which were mostly negotiated during times of higher inflation or a weaker cedi.
Due to the difficulty of altering long-term contracts, these fixed costs obviously remain high even when the exchange rate improves.
Adding to this is the rising cost of electricity, fuel, and domestic transportation, and it becomes clear that import costs are only part of the picture. Local operating costs remain stubbornly high, blunting the impact of currency gains.
“Think about rent for shops, utility contracts, maybe even some wage agreements. These might have been set when inflation was higher. So those costs are locked in for a while. They don’t just adjust overnight because the exchange rate moved today, and then there’s the whole domestic cost structure within Ghana itself,” the podcast noted.
Inventory Cycle Lag
Another factor mitigating price reduction lies in inventory cycles. Many importers are still selling goods they purchased three to six months ago when the cedi was far weaker and the dollar was more expensive. This is the commonest argument often cited by the traders in our country.
Until those older stocks are sold off, there’s little financial room to pass on savings from more recent, lower-cost imports.
The podcast was also quick to add that in some sectors, especially electronics, pharmaceuticals, and automobiles, this lag can be particularly pronounced.
Market Dynamics and Competitive Pressure
The effectiveness and the competition levels in the market also play a crucial role. The market often pushes businesses to increase prices during tough times. But when costs fall, the reverse pressure to reduce prices is much weaker. With little incentive to lower prices, and competitors often choosing to maintain existing price points, some businesses prefer to pocket the increased margin rather than pass on savings.
Even public calls from trade groups like the Ghana Union of Traders Association for price reductions remain largely voluntary and, so far, have had limited effect.
Global Commodity Prices Remain High
The podcast finally indicated that global market forces also play a crucial role in Ghana’s price stickiness. Many of Ghana’s essential imports, ranging from wheat and rice to fuel, are still trading at high prices due to lingering supply chain disruptions and geopolitical tensions.
This means that even if the cedi is performing better, the baseline prices for many goods remain high internationally, muting the potential for significant price drops at home.
Parallels to the 2007 Redenomination
Is this the first time improved macroeconomic indicators are failing to translate into real gains for consumers in Ghana? Well, it is not. For many economists, today’s situation evokes a sense of déjà vu.
As far back as 2007, Ghana’s government redenominated the cedi, knocking off four zeros from the currency in a bid to simplify transactions and instill public confidence. Initially, the move brought some macroeconomic calm.
However, the move was not backed by the kind of deep, structural economic reforms needed to support long-term stability. By 2014, the cedi was once again in steep decline, dragged down by persistent fiscal deficits and over-reliance on external borrowing.
“You can also look at the cedi redenomination back in 2007. That brought some temporary stability, made transactions feel simpler. But because it wasn’t backed up by deeper, sustainable economic reforms, the effect didn’t last. By 2014, the cedi was depreciating significantly again. So, just changing the notes didn’t fix the underlying problems,” analysts on the podcast again noted.
The Broader Lesson
Today, Ghana may be treading similar ground where gains made in the macroeconomic environment are not necessarily translating into the pockets of Ghanaians. While the recent appreciation of the cedi is welcomed, it risks becoming yet another fleeting episode if not underpinned by structural reforms: better fiscal discipline, diversified exports, improved productivity, and reduced dependence on imports.
For the analysts, the stubbornness of prices in the face of a stronger currency isn’t just about economics, it’s about trust, planning, and structural transformation. For Ghanaian households grappling with the high cost of living, the frustration is real. But the fix isn’t as simple as watching the exchange rate ticker.
Until broader and drastic economic reforms are implemented to tackle everything from inflation management to local production and cost control, the promise of lower prices may remain just a mirage despite cedi and inflation gains.
