Between May and September 2024, Ghana’s inflation story has been anything but straightforward. For consumers and policymakers alike, the fluctuations in inflation particularly the spike in food prices are causing considerable unease.
Inflation, which initially showed signs of cooling, has been disrupted by rising food costs, painting a more complex economic picture than anticipated. For the ordinary Ghanaian, these numbers reflect a stark reality, one where their purchasing power shrinks, and the cost of living continues to rise.
The Inflation Landscape: May to September 2024
In May 2024, inflation eased to 23.2%, sparking cautious optimism. This decline continued into June at 22.8%, and further down to 20.9% in July and 20.4% in August. These numbers signaled that perhaps, after months of economic strain, Ghana was turning a corner. However, in September, it crept back up to 21.5%. The cause? A sharp increase in food prices.
Rising food prices, driven by both local and global factors but especially local factors, disrupted the otherwise encouraging trend. For households across the country, this is not just an economic statistic, it is a reality felt with each visit to the market. The price of essential food items like tomatoes, vegetables, and cooking oil, essential food items climbed steadily, placing additional pressure on household budgets.
What’s Behind the Surge?
The surge in food prices over the past few months stems from a confluence of factors. First, poor rainfall patterns and prolonged dry spells have severely impacted agricultural output in many regions, particularly in the north. Ghana relies heavily on smallholder farmers for its staple food supply, and with lower yields, food scarcity has driven up prices.
Transportation costs also play a critical role. Despite efforts by the government to stabilize fuel prices, logistical challenges and high fuel costs continue to inflate food prices. Moving goods from farms to markets is not only expensive but also inefficient due to infrastructure limitations. Inflation in fuel prices, while stabilized temporarily, continues to be a burden on the cost structure for traders and consumers alike.
One of the significant factors exacerbating these challenges is the issue of galamsey, or illegal mining. Over the past several months, illegal mining activities have caused widespread environmental destruction, especially in farming regions where rivers and farmlands have been contaminated by mining waste.
This has reduced arable land and affected crop yields, making it even more difficult for farmers to produce enough food to meet local demand. The destruction of water bodies has also disrupted irrigation systems, further diminishing agricultural productivity.
Global market dynamics have added to the complexity, but the local situation is proving to be a bigger driver of rising food prices. Ghana produces a significant portion of its staple foods locally, such as maize, cassava, and yams. However, disruptions in local production due to erratic weather patterns and challenges in the agricultural supply chain are having a much more direct impact on food inflation.
On the other hand, the import of non-food items, such as electronics, machinery, and industrial materials, is placing a heavier burden on the cedi. As the currency depreciates against major foreign currencies, importers of these non-food items are forced to pass on higher costs to consumers.
This depreciation of the cedi is contributing to broader inflationary pressures, but its impact is more pronounced on non-food goods, driving up costs in sectors like manufacturing and construction.
Inflation’s Impact on the Ghanaian Consumer
For the average Ghanaian, these inflationary trends hit home in a very tangible way. Household budgets have been stretched to their limits, and for many, the rising cost of food means making difficult decisions about where to cut back. Consumers who once had the luxury of choosing between brands are now simply trying to make their money last long enough to cover the basics.
The impact of inflation is especially hard on low-income households, which spend a significant portion of their income on food. When food prices surge, these families feel the pressure the most. It’s not uncommon for families to reduce the number of meals they have per day or resort to cheaper, less nutritious options. The inflationary environment has transformed food shopping into a constant exercise in compromise, balancing between needs and what little cash is available.
Policy Response: What’s Being Done?
In response to these inflationary pressures, the government and central bank have taken several steps aimed at stabilizing the economy and alleviating the burden on consumers. Notably, in a bold move, the Bank of Ghana cut its monetary policy rate by 2% from 29% to 27%. This easing of the policy rate, while initially surprising to some, was aimed at supporting economic growth by reducing the cost of borrowing for businesses and consumers.
The logic behind this decision was that with inflation showing signs of easing earlier in the year, there was room to relax monetary policy without triggering runaway inflation. However, as food prices spiked, the central bank’s move has come under scrutiny.
Lowering interest rates makes borrowing cheaper, which theoretically stimulates investment and consumption. However, in the current climate of rising food costs, this approach has yet to produce the desired relief for consumers at the market level.
The government has also doubled down on its support for the agriculture sector, particularly through subsidies aimed at reducing the cost of fertilizers and other essential farming inputs. The intent is clear: boost local production to stabilize supply and, ultimately, reduce prices. While this is a necessary long-term strategy, it faces significant implementation hurdles, including inefficiencies in distribution and delays in getting resources to the farmers who need them most.
Additionally, efforts have been made to improve food storage and reduce post-harvest losses, which have long been a thorn in the side of Ghana’s agricultural sector. Every year, millions of cedis worth of food are lost due to inadequate storage facilities, particularly in rural farming communities. By addressing these infrastructure gaps, the government hopes to create more stability in food supply, which would, in turn, moderate price fluctuations.
Are These Policies Enough?
While the government’s interventions both monetary and fiscal are well-intentioned, their effectiveness remains a subject of debate. The 2% cut in the monetary policy rate, for instance, was a measured step to stimulate economic activity. But with rising food prices driven by structural issues in agriculture and global supply chains, its immediate impact on the average Ghanaian has been minimal.
The agricultural subsidies, while theoretically beneficial, have not always reached the smallholder farmers who need them the most. Issues of distribution and access have created bottlenecks, slowing the impact of these interventions. In the meantime, food prices continue to climb, and consumers are feeling the pinch.
What is clear, however, is that there needs to be a more comprehensive approach. A more effective solution would involve not just short-term relief measures like subsidies but also addressing the structural weaknesses in Ghana’s agricultural and transportation sectors. Building better roads, improving irrigation systems, and creating more efficient supply chains will help ensure that food gets to market faster and at a lower cost.
The period between May and September 2024 has exposed both the vulnerabilities and strengths of Ghana’s economic framework. Inflation, particularly food inflation, remains a critical challenge, testing the limits of policy responses. While efforts to stabilize the economy may be underway, the road to recovery will require a coordinated and multifaceted approach that addresses both the immediate and structural causes of inflation.
