Ghana’s public sector workers are set to receive salary increases of 9% in 2027 and 10% in 2028 but while the adjustments promise higher take-home pay, the real benefit workers derive will depend largely on one critical economic indicator, which is inflation.
At first glance, the increases appear encouraging, particularly against Ghana’s current inflation rate of approximately 5.2%. However, a closer examination suggests that the headline increases may not necessarily translate into equivalent improvements in workers’ living standards.
This is the observation of a Finance Professor at the Andrews University in the United States of America (USA), Professor Williams Kwasi Peprah.
According to the finance professor, the distinction lies between nominal wage growth and real income growth. Economists explain that while nominal wages measure the actual increase in salaries, real wages measure how much those salaries can buy after accounting for rising prices.
However, Prof. Peprah argues that the negotiations are intended to protect public sector workers’ purchasing power by ensuring that wage adjustments take inflation into consideration.
In an interview monitored by The High Street Journal, Prof. Peprah noted that under this arrangement, workers could enjoy real income gains if inflation remains below the agreed salary adjustment rates.
For instance, if inflation averages 6%, the 9% salary increase in 2027 would translate into approximately 2.8% growth in real wages. Similarly, a 10% salary adjustment in 2028 against 6% inflation would deliver approximately 3.8% in real income gains.
In practical terms, workers would not only receive more money but would also be able to afford more goods and services than before.
However, the professor cautions that the outcome could be considerably different if inflation approaches the upper boundary of the Bank of Ghana’s medium-term inflation target of 8% ± 2%.
At 10% inflation, the 9% salary adjustment for 2027 would result in approximately 0.9% erosion in real wages. This means that despite receiving higher salaries, workers would actually lose some purchasing power because prices would be increasing faster than their earnings.
For 2028, a 10% salary adjustment against 10% inflation would effectively preserve purchasing power, leaving workers with virtually no real income gain.
This appears to be the central uncertainty surrounding the agreement. He notes that ultimately, the success of the adjustments will depend partly on the government’s ability to sustain macroeconomic stability, particularly by keeping inflation under control.
For now, the wage agreement may provide nominal income growth, but inflation will determine whether workers actually become better off.
