Consumers in Ghana may be breathing a little easier as inflation continues to ease; however, there is a general feeling that the prices in shops and markets are not cooling as fast as many had hoped.
While some goods have witnessed a fall in price, some also remain at very high levels. For instance, the price of cement has remained relatively high despite the significant improvement in the macroeconomic indicators, especially inflation and the exchange rate.
It took the Minister for Roads and Highways to express his frustration, threatening that only wholesalers, producers, and retailers who reduce their prices to reflect the current economic gains will be considered for government contracts in the upcoming road construction projects.
But responding to the concerns, the President of the Ghana Union of Traders Association (GUTA), Joseph Obeng, confirmed that indeed prices have generally reduced; however, it is not to the expectation of the consumers.
“Prices have responded positively already, but the problem here is the expected reduction or the rate of reduction. That’s what is in contention now,” he indicated.
Joseph Obeng, there are two very practical reasons accounting for the situation. Speaking in a media interview monitored by The High Street Journal, he explained these reasons;
Difficulty in Assessing Forex from Mainstream Banks
Joseph Obeng explained that traders are struggling to access foreign exchange (forex) through mainstream banks. This bottleneck means many businesses are still forced to turn to more expensive, informal sources or the black market for dollars to pay for imports.
So while exchange rates have appreciated on paper as announced by the Bank of Ghana, the traders pay more to access the dollars at the black market rates. These costs, despite the purported appreciated rate, inevitably end up influencing prices.
He emphasized that, “probably people thought prices could have gone down extremely low, but you know, the difficulty in assessing the forex through the mainstream banks is also a major factor that is not helping the prices to reduce.”
High Interest Rate Despite Recent Fall in Policy Rate
Despite the recent fall in the Monetary Policy Rate (MPR), commercial banks have been slow to cut interest rates. The President of GUTA explains that this delay keeps the cost of borrowing high, pushing up the overall cost of doing business and limiting how much traders can lower their prices. “
For the trading community, the cost of borrowing is an integral part of their cost buildup, and therefore, if banks haven’t responded, then the cost of doing business will still be high. This, he says, is the current situation of the business community and hence the perceived high prices by consumers.
“Then, also the interest rates. For now, the banks should have started responding. If they haven’t responded, then of course, the cost of doing business is still high because the cost of borrowing is also high. And they are all major factors in pricing,” he added.
The Caution
Joseph Obeng further stressed that while inflation measures the rate at which prices rise, it does not automatically mean existing prices will fall. He wants consumers to understand that reduced inflation does not necessarily result in a cut in prices; however, it is the rate of increase that drops.
Irrespective of this principle, he noted that given the significant gains in the economy, the traders have also reduced their prices in response.
“What people also should understand is that inflation is the rate at which goods are going up; it does not necessarily mean that the existing prices should also go down. And so for the trading community, we have already responded to the price reduction for all to see,” he clarified.
With these explanations, consumers will have to temper expectations: inflation may be down, but until these two underlying issues are resolved, market prices will likely remain stubbornly high.
