Dr Addison pegs year-end inflation rate between 13-17%; dismisses disinflation derailment by VAT imposition on electricity consumption

Governor of the Central Bank and Chairman of the Monetary Policy Committee (MPC), Dr Ernest Addison, has forecasted the country’s headline inflation to end the year between 13% and 17%.

The projection is in line with the IMF’s end-2024 inflation projection rate of 15% (+-2%).

“The latest forecast suggest that the disinflation process will continue and headline inflation is expected to ease to around 13% to 17% by the end of 2024, before gradually trending back to within the medium term target range of 6% to 10% by 2025.

“These forecasts notwithstanding, there are upside risks to the inflation outlook and there is the need for strict implementation of the 2024 budget and a tight monetary policy stance to sustain the disinflation process,” he said.

The forecast, the Governor noted, takes into consideration a myriad of factors hence the range in the inflation figures for end-2024.

Notable among the factors is the recent imposition of Value Added Tax (VAT) on electricity consumption by the Government.

Government has mandated the implementation of Value Added Tax (VAT) on households exceeding their prescribed lifeline power consumption levels, effective January 1, 2024.

In a directive that underscores the government’s drive to bolster revenue streams, the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCO) have been instructed to collaborate closely with the Ghana Revenue Authority (GRA) to ensure the seamless imposition and collection of VAT on consumers who breach the established consumption thresholds for lifeline units.

Announcing a reduction of 100bps in the monetary policy rate to 29% at the apex bank’s 116th MPC press briefing on Monday, the Governor noted that, the decision by the Committee to cut the policy rate comes on the back of the steady decline in headline inflation from the December 2022 year high of 54 percent to 23 percent in December 2023.

Asserting that inflation expectations are well anchored with the outlook for inflation being continued disinflation as previous policy tightening effects impact both headline and core inflation.

Touching on whether the imposition of VAT on electricity consumption is likely to impact the trajectory of the country’s inflation and derail the disinflation process, the Governor noted, “We do not expect the new VAT imposition on electricity to lead to a second round effect and derail the disinflation process.”

“The MPC in its projection for the end-2024 inflation rate of 13% to 17% took that into consideration,” he added.

Meanwhile, the BoG is the first African central bank to undertake a cut in its policy rate far this year. The cut in its benchmark interest rate is the first time since 2021.

Source:norvanreports