The Dean of the University of Cape Coast (UCC) Business School, Prof. John Gatsi has asserted that inflation targeting is not the only economic tool available for achieving price stability.
While it serves as a crucial framework for many central banks, he pointed out the importance of a collaborative effort among monetary policy, fiscal policy, and the productive sector—the real economy.
Prof. Gatsi who was speaking in an interview, therefore, emphasized the need for a synergistic approach involving monetary policy, fiscal policy, and the productive sector—the real economy.
He noted that although inflation targets are widely used, with roots traced back to New Zealand and subsequent adoption by countries like Finland and Sweden, these nations do not currently grapple with high inflation or significant cost of living crises that disrupt the business environment.
“We are using inflation targets. Now, we are not the only country using inflation targeting. One inflation target that started in the early 90s out of New Zealand and other countries like Finland, Sweden and so on. Those countries are not today really under very high inflation and the high cost of living across the country, disturbing the business environment and creating problems for us. So, all the supporting tools that we need to use are supposed to be readily available and productive,” Gatsi stated.
He further expounded on the interplay of three key components of price stability: inflation, interest rates, and exchange rates. According to Gatsi, exchange rate fluctuations can trigger inflationary pressures, which in turn impact interest rates.
Ghana’s journey with inflation targeting began in 2007, to achieve price stability and support economic growth. However, the country has consistently struggled to meet its inflation targets, often recording actual inflation rates significantly above the set goals. For instance, inflation was pegged at 23.2% in December 2023, down from a peak of 54.1% in December 2022.
As of July 2024, the inflation rate decreased to 20.9%, marking the fourth consecutive monthly decline. This reduction has been attributed to decreases in both food and non-food inflation, indicating some progress in stabilizing the economy. Despite this improvement, the current inflation rate remains well above the target range, highlighting the ongoing challenges Ghana faces in effectively implementing its inflation-targeting framework.
Prof. Gatsi cautioned that relying solely on inflation targets may not adequately address the complexities inherent in inflation dynamics.
He advocated for a more integrated approach, where monetary policies, fiscal policies, and the real sector work in harmony to foster a stable economic environment.
